The potential of ESG Bonds

The potential of ESG Bonds

Sustainable investing is becoming the new norm in portfolio management. According to Ernst & Young, the investment category has grown by 107.4% since 2012. Seven years on, Morningstar published research that illustrated that dozens of ESG funds dominated the market in first half of 2019.

In addition to this, JP Morgan Asset Management has recently published research surrounding the potential of ESG bonds. The fund group’s research comes hot off the heels of studies conducted by BlueBay Asset Management and Hermes Investment Management.

The research details that bonds with ESG overlays can potentially enjoy marginally increasing risk-adjusted returns and reduced portfolio volatility.

Following up on this, Vice president of quantitative research, global fixed income, currency & commodities at JP Morgan Asset Management; Lovjit Thukral states “constructing a corporate bond portfolio with higher ESG scores clearly results in alpha opportunities.”

As a result, more institutional investors are investing in environmental, social and governance funds. Asset, fund and wealth managers have noted this shift especially amongst millennial investors and women investors, both of which showcase an investment style motivated by purpose-driven investing.

Research conducted by Ernst & Young shows that millennial investors are twice as likely to invest in companies or work with a fund manager that specifically targets ESG outcomes. At the same time, in a study conducted by Wealthiher Network, 67.4% of women who fall into the HNWI and UHNWI category detail that making a social impact is a fundamental part to their investment decisions. Whilst 65% of women interviewed stated that ethical investments are of high priority. This statistic rises to 83% when women inherited their wealth.

With the rise of investors looking to factor in ESG funds within their portfolios, and research from JP Morgan detailing the potential benefits of their inclusion within fund management, ESG funds are opportune for fund managers.