For 20 years there has been a clear increase in demand for ESG fixed income, with the trend accelerating after the Global Financial Crisis. While investors have been slow to use ETFs as a vehicle for these strategies, preferring mutual funds, there has recently been clear uptick in adoption.
Many have associated the growth in ESG investing with equity strategies, while a less talked about area of the responsible investing landscape is within the fixed income space. Despite the lack of attention, fixed income ESG strategies have grown in popularity and there are now nearly 1,500 funds offered globally, with just shy of $1 trillion of assets invested.
Although most of these assets have been invested within active mutual funds over the past three years, there has been a meaningful uptick in both the number of ESG fixed income ETFs and also the adoption of these investment vehicles by investors. In 2019 alone we saw $5.6 billion flow into ESG fixed income ETFs, more than five times the previous record year, and 2020 has already surpassed that figure.1
1 Source: Morningstar Direct, as of 31 August 2020.