Investors increasingly drawn to ESG bonds – survey

The COVID-19 crisis has institutional investors worldwide increasing their allocations to ESG bonds, according to a CoreData Research study released Wednesday that also found widespread agreement over the value of ESG in fixed income.

CoreData Research surveyed 200 institutional investors in February and found that, overall, 45% plan to raise their exposure to green and sustainable bonds because of the pandemic. North American investors had lower ambitions, with 34% planning to raise their exposure, compared to 59% of investors in Europe and 53% in the Asia Pacific.

European investors were also more enthusiastic about the value of integrating ESG into fixed-income investments to improve performance and manage credit risk, with 84% agreeing that it does, compared to 72% overall.

Most of the global investors surveyed, 61%, saw ESG risk factors as relevant to the investment performance of fixed-income strategies, but 69% thought that a shortage of ESG risk ratings and data for fixed-income investments is holding back wider adoption. That was particularly true in Europe, where 81% of respondents thought so.

"These findings indicate that difficulties assessing and benchmarking the sustainability credentials of ESG bonds are acting as a barrier to stronger growth," said Andrew Inwood, founder and principal of CoreData, in a release.

The survey also found that the pandemic and a resulting hunt for yield has propelled fixed-income investors into riskier areas, with 79% of the global investors looking for opportunities in income-generating alternative investments, 55% looking at distressed debt and high-yield bonds, and 71% reporting interest in emerging market debt due to the prospect of higher yields and improving fundamentals.