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Fixed-income ESG, it’s big in Europe

According to data compiled by Cerulli Associates, there were a €236.7 billion in European assets invested in environmental, social and governance equity funds and a €97 billion invested in their fixed-income counterparts at the end of 2017. During the year, the equity funds gathered €24.8 billion, net, in new client money, while the fixed-income funds took in a net €11.3 billion. Despite taking in less than half of what the equity group acquired, fixed-income funds performed on par in relative terms, with each cohort adding about 13% of its ending 2016 assets under management.

Investors have taken more time to warm to ESG screens as they apply to fixed income than they have with equity. Part of that hesitation has been the lack of ESG-focused fixed-income benchmarks to monitor performance against, but other issues including engagement of issuers, Cerulli notes, particularly sovereigns, and lack of supply also impacts allocation decisions. Bloomberg bond data show that only €11.3 billion in bonds have been issued in 2018 with proceeds specifically slated for social purposes While up significantly from 2017's €6.9 billion and 2016's €1.1 billion, there is still a way to go before it is a meaningful piece of the global debt market.

The green bond market is more mature with €109.5 billion in total issues in 2018 and €124.7 billion in 2017.