SUSTAINABLE FIXED INCOME

Environmental, social and governance (ESG) and sustainable investing continues to gather strong momentum. What started out as an equity focused investment trend has been steadily broadening out across asset classes, as technology advances and more products become available.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

SUSTAINABLE IS THE INDUSTRY’S NEW STANDARD, ACROSS ASSET CLASSES

Across the industry, we have seen sustainable fixed income indexing assets more than double every year since 2018, as investors seek to move towards more sustainable fixed income allocations.

Sustainable ESG fixed income ETF AUM globally (US$ bn)

Graph showing growth in sustainable indexing
Source: BlackRock as at 31 December 2020.

INVESTORS ARE CONSIDERING A VARIETY OF APPROACHES TO INCORPORATE SUSTAINABILITY IN THEIR PORTFOLIOS

At BlackRock we see asset growth coming primarily from investors:

  • switching from non-ESG to ESG products to improve the sustainability profile of their investments using sustainable building blocks for core holdings
  • selecting one environmental (“E”), social (“S”) or governance (“G”) consideration and investing thematically, for example, focusing on climate change
  • seeking an impact investment approach such as green bonds

Increasingly, as the range of sustainable fixed income products available expands, investors are using indexing to create sustainable fixed income portfolios, valuing the transparent, standardised, rules-based approach to sustainable investing.
Whilst asset growth is growing rapidly, if we look at the trajectory of sustainable equity index investing, we predict the trend towards sustainable fixed income indexing is just getting started.

NAVIGATE OUR RANGE

3 AREAS WHERE SUSTAINABLE FIXED INCOME ETFs COULD HAVE AN IMPACT








We expect companies with stronger sustainability commitments to attract more capital in decades to come, resulting in better access to financing, fuelling increased demand for bonds issued by more sustainable companies and lowering their cost of capital.

Many investors now use climate risk metrics to evaluate a country’s sustainability profile. Increased reporting by governments on decarbonisation and other climate-related risks, driven by social and regulatory pressures, has helped facilitate this evolution.

Impact investing through green bonds (a bond in which the proceeds are exclusively applied towards new and existing “green” projects), enables investors to focus on measurable environmental metrics, through impact reporting.

SUSTAINABLE FIXED INCOME INDEXING SUSTAINED PERFORMANCE DURING MARKET VOLATILITY

The volatility seen in March and April 2020 shone a light on fixed income ESG investing as a new source of resilience with sustainable credit indices seeing lower drawdowns relative to the non-ESG parent indices. For example, Bloomberg Barclays MSCI Euro Corporate Sustainable SRI index outperformed its non ESG parent by 0.07% over the past 1 year1.

The empirical data is clear and objective: there is no evidence that investing sustainably requires a performance sacrifice - in fact, the opposite appears to be true.

Graph showing resilience of fixed income ETFs during 2020 volatility

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results. Index performance returns do not reflect any management fees, transaction costs or expenses. Indices are unmanaged and one cannot invest directly in an index.
Source: BlackRock, Bloomberg as at 30 December 2020.

1Source: BlackRock, Bloomberg as at 31 January 2020.

WHY iSHARES FOR SUSTAINABLE FIXED INCOME?

Key

Access & breadth of range

iShares offers the broadest suite of sustainable fixed income ETFs and index funds, which are among the largest funds with long, established track records.

Diamond

Product quality

iShares combines fixed income indexing expertise across asset classes, with BlackRock’s sustainable investing expertise to provide best-in-class sustainable fixed income solutions.

Person

Dedicated partner

iShares funds benefit from BlackRock data and insights on sustainability related issues derived from our stewardship activities.