Chart 1:  Green Bond Funds – Assets Under Management (January 2020 to January 2021)

Notes of Explanation:  Fund total net assets data source:  Morningstar Direct; fund filings. Research and analysis by Sustainable Research and Analysis LLC 

Green bond funds continue to expand in the U.S. (Chart 1), while the issuance of other sustainable finance debt instruments reached nearly $53 billion and may be contributing to a squeezing out of green bonds (Chart 2).

Chart 2:  Sustainable Finance Debt Issuance (January 2021)

Notes of Explanation:  Sustainability linked loans are issued in the private market and the volume data applicable to this category, sourced to Bloomberg, may not be final.   Sources:  SEB, Bloomberg New Energy Finance, Climate Bond Initiative.  

Sustainable finance debt instruments fall into two basic categories, bonds and loans which can have similar titles (e.g. Green, Social, Blue, Sustainability) but differ in their origination and use.  A company does not have to be “green” to issue a green bond or loan.  An important factor in the selection of a sustainable finance instrument is how the funds are being used.  For example, a Sustainability Linked Loan is focused on the ESG performance of the company itself, rather than on the use of proceeds.

Sustainable finance debt instruments will continue to play a significant role in tackling environmental and social issues.  It is important to understand the distinction between each of these instruments and to choose the ones that best meet the sustainable mandates of your clients.

Sustainable Research & Analysis LLC provides a timely monthly snapshot of trends and developments affecting the sustainable investing market segment as seen through the lens of mutual funds and ETFs. The Monitor tracks total net assets, fund flows, fund re-brandings, new fund firms, new fund launches and fund closures.  CLICK HERE to request additional information.

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