Sustainable bond funds had positive growth until early 2022, may benefit from rate cuts.

From Morningstar: 2024-06-19 07:37:00

Sustainable bond funds saw a positive five-year period until March 2022, then reversed due to higher average duration impacting performance in a rising interest rate environment, according to Morningstar analysis.

Global issuance of sustainable bonds reached USD 870 billion in 2023, nearing a record total of USD 4.4 trillion, with green bonds dominating two-thirds of the market, funding environmental projects.

European funds and ETFs classified under SFDR Article 9 saw EUR 4.2 billion in net inflows over the first four months of 2023, reflecting 5.4% organic growth and reaching EUR 75 billion in assets under management by April’s end.

Governments issued over USD 160 billion in green sovereign bonds in 2023, with clean transportation projects leading the way, such as rail systems in Belgium and tax exemptions for renewables in France.

As the green bond market grows, due diligence is crucial to identify quality issues and avoid greenwashing, ensuring the funding of impactful projects in an evolving and potentially risky market landscape.



Read more at Morningstar: Rate Cuts May Boost ESG Bond Funds