ESG Bond Inflows Hit $54B Despite Data Issues

Investors are pouring money into bonds linked to environmental, social and governance (ESG) criteria, with $54 billion invested in the first five months of 2021.

According to Morningstar data, which covered open-ended funds and exchange traded funds globally, total assets under management in these products increased by 14% to $374 billion in that period.

This marked a threefold increase in the space of three years.

In 2020, assets climbed by 66%, compared with a 12% jump in assets for the entire fixed-income fund universe.

Some fund managers, however, have had a hard time assessing the ESG credentials of these instruments, according to the Financial Times, while concerns around greenwashing have escalated.

According to the report, investors felt that the availability of data had made it easier to apply ESG to listed equities. However, others admitted that they find navigating the variety of ESG options within bond markets challenging.

Jose Garcia-Zarate, associate director at Morningstar, told the FT that labelling government bonds with ESG criteria, for example, had proved “very, very tricky” and that there was “still no consensus on how to go about classifying governments and countries”.

Recent analysis from Bank of America also showed that green bonds raised in excess of $200 billion in each quarter of the first half of 2021.

Sustainable bonds raised $40 billion in the first half of the year, compared to $16 billion raised across 2019 and 2020. Social bonds also raised $133 billion, according to the analysis.

The difference in reported figures between sources reflects the varying definitions of green, sustainable, and ESG bonds – another source of confusion for many investors.