Sustainable Euro corporate bonds see strong inflows

Despite lacklustre performance and lower issuance levels in 2022

Fixed income markets last year presented a rough patch for investors, struggling to provide protection during one of the most severe market downturns in recent history. Bond issuance declined in this context as interest rates climbed steadily, increasing borrowing costs for companies.

Following years of rapid expansion, this had a negative impact on the momentum of sustainable bonds in the European corporate bond market, which have experienced lower issuance levels compared with last year.

However, data shows that throughout 2022, sustainable funds in the Morningstar Euro Corporate Bond category (including funds with shorter maturity) experienced a total net inflow of approximately €11.8bn (£10.4bn), indicating continued investor appetite.

In fact, the cumulative amount of €4.7bn that was pulled from core funds within the category over the course of the year was more than offset by flows into sustainable options in the space.

The category has evolved rapidly in recent years through new sustainable fund launches or strategies that started to incorporate ESG factors into their investment processes.

According to Morningstar data, currently almost a third of the funds in the EU corporate bond category are deemed as having a sustainable focus and more than half of the funds launched in 2022 were explicitly targeting ESG objectives.

Read the full article in ESG Clarity’s February 2023 digital magazine.