Original, independent, thought leadership

Sustainable Funds Monitor

A timely monthly snapshot of trends and developments in the sustainable investing market segment as seen through the lens of mutual funds and ETFs. The Monitor tracks total net assets trends, new fund launches and fund closures, sustainable bond issuances and the performance results of selected sustainable indices versus conventional benchmarks. Published monthly, the Sustainable Funds Monitor is usually available within ten days following the month’s end.

Sustainable Investing Monitor-July 2026

Sustainable Bottom Line: Assets of L-T labeled sustainable funds ended in June lower due to net outflows while sustainable indices delivered positive relative performance results. Long-Term Net Assets of Focused Sustainable Mutual Funds and ETFs: 2025 – 6/30/2026In June when every major asset class gave back ground or advanced only modestly, in contrast to the broad powerful gains of April and May, dedicated sustainable long-term mutual funds and ETFs gained an average of 0.52% and closed the month at $402.3 billion in net assets, for a net decline of $0.94 billion versus last month’s $403.3 billion. This was across a universe of labeled or dedicated sustainable mutual funds and ETFs, as classified by Morningstar, consisting of 1,004 funds/share classes, including 823 mutual funds/share classes or a total of 303 individual funds (based on revised data), and 181 ETFs, for a combined total of 484 funds. The number of funds experienced another drop in June, falling by 18 funds (12 mutual funds and 7 ETFs-offset by one new ETF listing in June). For only the second time this year, the combined total of assets attributable to sustainable mutual funds and ETFs experienced a monthly decline. Net assets dropped by $0.94 billion, largely due to capital depreciation attributable to the negative average performance of ETFs (in contrast, mutual funds posted an average gain), net outflows and fund liquidations. On the other hand, mutual funds, which were up an average of 0.84%, added $1.23 billion in net assets. Using the back of the envelope calculation, long-term mutual funds and ETFs experienced combined net cash outflows estimated at around $3.1 billion. Since the start of the year, labeled long-term sustainable mutual funds and ETFs expanded by $27.7 billion compared to a net increase of $5.4 billion during the comparable period in 2025. [Note: Total net assets as well as cash flows may be skewed by as much as $1.5 billion due to the potential omission of one $1.6 billion fund, still under investigation]New Focused Sustainable Fund Launches: 2025 – 6/30/2026After an eight-month dry spell, one new labeled sustainable fund launch was recorded in June 2026. The $1.4 million index tracking Defiance Autism Impact ETF (ASD), listed on June 1 and offered at 79 basis points, tracks the performance of publicly traded global companies in developed markets that provide products, services and/or research supporting the autism ecosystem comprised of individuals on the autism spectrum and within the broader neurodivergent community. The newly listed fund brings the year-to-date total fund launches to one fund versus seven funds that were listed during the same interval last year. The ongoing scarcity in new listings continues to reflect the dramatic slowdown in new focused or labeled long-term sustainable fund offerings, starting in mid-2023 to-date, coinciding with a political backlash against ESG investing and potentially some diminishing level of response to ESG-labeled fund products. Compliance with the SEC’s amended Names Rule that went into effect last month may also be holding back new fund launches and also contributing to fund closures as well as liquidations which reached a total of 10 funds this month (7 ETFs and 3 funds/8 share classes). This includes the liquidation of seven ESG and sustainable Putnam ETFs (a unit of Franklin Templeton) with a combined total of $69.8 million in assets under management. Six of the seven funds managed less than $10 million while one fund, the Putnam ESG Ultra Short ETF, managed $35.8 million and accounted for 51% of the total $69.8 million in liquidated assets.Green, Social and Sustainability Bonds Issuance to 6/30/2026 According to SIFMA, conventional fixed income issuance in the U.S. decreased slightly in Q2 2026 to $3.2 trillion, or a decline of 1.7% on a quarter-over-quarter basis. Against this backdrop, U.S. sustainable debt (including green, social and sustainability bonds) issuance reached $40.1 billion versus $29.6 billion in Q1, for a Q/Q increase of $10.5 billion, or 35.4%. Compared to the second quarter of 2025, sustainable debt issuance expanded by $1.8 billion, for an increase of 4.7%. Sustainability bonds accounted for 52.5% the the issuance volume in the second quarter while green bonds and social bonds made up 40.7% and 6.8%, respectively. Since the start of the year, issuance of sustainable debt instruments in the U.S. reached $69.6 billion compared to last year’s $95.2 or a drop of 27%. A straight-line interpolation suggests that 2026 U.S. sustainable debt issuance could end up at around $139.2 billion, which would represent a significant decline of $45.1 billion, or 24%. Worldwide, issuance also picked up momentum relative to Q2. Total issuance reached $287.8 billion in Q2, for a strong increase of $46.9 billion or 19.5%. Green bonds accounted for 68.9% of issuance while sustainability and social bonds stood at 18.5% and 12.6%, respectively. Year-to-date, global sustainable debt reached $528.7 billion versus $467.6 billion registered during the first six months of the prior year, or a 13% increase at $61.1 billion. A straight-line interpolation suggests that this year’s global issuance could exceed $1.0 trillion. S-T Relative Performance of Selected Sustainable Indices vs. Conventional Indices to 6/30/2026 Markets in Review. U.S. and international equity markets staged a powerful recovery in the second quarter of 2026, fully reversing a difficult first quarter driven by the escalation of the Iran conflict and an oil-price shock. The S&P 500 gained 15.2% in the quarter, its strongest three-month showing in several years, lifting the year-to-date total return to 10.2% through June 30. At the same time, small cap stocks added 21.5% in the first quarter and 22.6% year-to-date. Gains for the S&P 500 were concentrated in April and May, powered by resilient earnings and surging AI-infrastructure capital spending. June itself was choppier, with the index slipping 0.95% as renewed Iran cease-fire violation headlines and profit-taking interrupted the rally in the final week of the month.International developed and developing markets, on a combined basis, outpaced the U.S. for the six-month period but lagged slightly during the second quarter. Emerging markets, in particular, delivered standout returns of 24.05% in the second quarter and 23.85% year-to-date according to the MSCI Emerging Markets Index. These postings bolstered international results, while international developed market equities trailed the S&P 500 in the second quarter and on a year-to-date basis. Fixed income was a story of modest, steady gains. The Bloomberg U.S. Aggregate Bond Index was up 0.67% quarter-to-date and 0.62% year-to-date, with credit outperforming Treasuries as spreads tightened alongside the broader risk-on tone. It’s worth noting that June itself reflected a change in character from the two months that preceded it. Every major asset class gave back ground or advanced only modestly in June, in contrast to the broad, powerful gains of April and May—offering a reminder that the second quarter's headline strength was concentrated in a relatively narrow window rather than distributed evenly across the quarter. U.S. and international equities both slipped or were roughly flat as cease-fire-violation headlines resurfaced late in the month, while fixed income posted a modest 0.24% increase. The trailing 12 months tells a third, complementary story. U.S. and international equities were both solidly higher over the full year, with the S&P 500 up 22.3%, and international benchmarks, led by emerging markets, running well ahead of that, even after absorbing the first-quarter shock from the Iran conflict. The scale of the past year's rally, however, has not been evenly shared. It favored small-cap and emerging-market stocks and sectors such as energy, materials, and other commodity-linked cyclicals that sustainable/ESG-screened indices structurally underweight. Sustainable mutual funds and ETFs. Labeled long-term sustainable mutual funds and ETFs gained an average 0.52% in June and 10.1% since the start of the year. ETFs, with their higher stock and commodities exposures but lower level of bond investments, registered an average negative 0.96% in June while mutual funds recorded an average gain of 0.84%. Across the board, U.S. equities posted an average gain of 1.7%, international equity funds added 0.3% and taxable bonds eked out a 0.2% gain. Near-term results posted by selected sustainable indices. Four of the six selected sustainable indices posted positive results in June. Performance results across the six benchmarks ranged from a low of -1.13% posted by the MSCI Emerging Markets Index to a high of 4.69% registered by the MSCI USA Small Cap Selection Index. At the same time, five of the six MSCI sustainable indices outperformed their conventional counterpart in June—for the first time so far this year. Excess returns in June ranged from 0.01% registered by the Bloomberg MSCI US Aggregate ESG Focus Index to a high of 1.23% achieved by the MSCI EAFE Selection Index. Trailing by 58 basis points, only the MSCI USA Small Cap Selection Index failed to outperform its conventional counterpart.The above average relative performance results in June were not matched by the relative outcomes posted over the trailing three-, six-and twelve-month intervals. In fact, over the trailing twelve months, only the MSCI USA Selection Index and the Bloomberg MSCI US Aggregate ESG Focus Index managed to outperform their conventional counterparts. At the same time, the MSCI USA Small Cap Selection Index and the MSCI Emerging Markets Selection Index registered some of the widest 12-month performance variations: -7.82% and 15.12%, respectively. Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index is the only one of the five selected stock-oriented benchmarks that distinguishes itself by posting consistent outperformance results over the three-, five- and ten-year intervals. While also posting positive results, the other four equity indices underperformed when compared to their conventional counterparts over the trailing three- five- and ten-year intervals. As for fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals, often achieving the same results or, if they vary, the results deviate by no more than one-to-two basis points in either direction. At the end of June, the relative results over the trailing three- and five-year periods are either flat or positive. Sources: Morningstar, MSCI, SIFMA, and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-June 2026

Sustainable Bottom Line: Assets of L-T focused sustainable funds gained $16.1 billion in May to reach $403.3B due to market appreciation and net positive flows. Long-Term Net Assets of Focused Sustainable Mutual Funds and ETFs: 2025 – 5/31/2026U.S. equity markets, responding to a robust first quarter earnings season, delivered another strong month. All three major indexes closed at record highs on the final trading day of May. This along with net positive flows were the drivers behind another solid gain of $16.1 billion in the assets of labeled long-term sustainable funds, based on Morningstar’s classifications, following last month’s $28.9 billion gain. This lifted assets to $403.3 billion, across the universe of 1,022 long-term sustainable mutual funds/share classes and ETFs. These represent a combined total of 384 mutual funds, consisting of 834 share classes and 187 ETFs versus 1,091 in April, for a decline of 65 funds/share classes due to data adjustments as well as fund liquidations. May’s gain in net assets was driven by the addition of $4.3 billion attributable to mutual funds while ETFs added $11.8 billion in net assets, after last month’s increase of $11.6 billion. Using a back of the envelope calculation, long-term mutual funds experienced net cash outflows totaling an estimated $2.6 billion whereas ETFs recorded estimated net inflows of $4.8 billion versus last month’s $4.4 billion gain, for a net inflow of about $3.7 billion in net assets. [Note: These numbers do not reflect adjustments for fund liquidations and data adjustments which would lift net inflows.] Since the start of the year, labeled long-term sustainable mutual funds and ETFs expanded by $28.7 billion, compared to a net decline of $7.2 billion during the comparable period in 2025. New Focused Sustainable Fund Launches: 2025 – 5/31/2026There were no new focused sustainable fund launches recorded in May 2026, based on Morningstar reporting, which was also the case over the previous four months, for a year-to-date total of zero new fund launches. This compares to five fund launches during the same five-month period in 2025. The drop-off in new listings continues to reflect the dramatic slowdown in new focused or labeled long-term sustainable fund offerings, starting in mid-2023 to-date, coincident with a political backlash against ESG investing and potentially some diminishing level of response to ESG-labeled fund products. Compliance with the SEC’s amended Names Rule that goes into effect this month may also be holding back new fund launches. A decline during the month of May in the number of funds/share classes was largely attributable to the liquidation of three funds managed by Calvert Management, with assets between $7.6M and $16.3M, including the Calvert Emerging Markets Focused Growth Fund ($7.6M), Calvert Focused Value Fund ($13.1M) and Calvert Global Small Cap Fund ($16.3M), for a total of $37.0 million. In addition, the $3.5 billion BlackRock LifePath Dynamic target date fund were reclassified, covering a total of 50 funds/share classes. Green, Social and Sustainability Bonds Issuance to 3/31/2026 Data covering sustainable debt issuance for the April-May 2026 time interval have not been finalized as of this date. For a more detailed recap of first-quarter results, see April’s Sustainable Investing Monitor. In the meantime, it was informally reported by Climate Bonds Initiative that the volume of new global ESG and sustainable bond issues reached $39.4 billion in April 2026, representing a surge of 85% compared to April 2025 and more than doubling the volume from March 2026. This monthly jump was heavily propelled by prominent green bond placements in developed markets, such as a major $5.7 billion debut Eurobond to fund AI data center infrastructure. By the end of May 2026, the global sustainable debt market reached a new milestone, with the cumulative historical aligned volume of green, social, sustainability, and sustainability-linked (GSS+) debt officially surpassing $7 trillion. S-T Relative Performance of Selected Sustainable Indices vs. Conventional Indices to 5/31/2026 Markets in Review. US and international equity markets capped another strong month while bond markets held up well. U.S. Equities. U.S. equity markets, responding to a robust first quarter earnings season, capped another strong month. All three major indexes closed at record highs on the final trading day of May. The technology-laden Nasdaq-100 led the advance, posting a gain of 10.6% in May and a year-to-date increase of 20.45% through month-end. At the same time, the S&P 500 Index rose by 5.3%, or roughly half the Nasdaq level and at a slightly higher clip of 11.3% from the start of the year. The Dow Jones Industrial Average, while also reaching record territory, saw a more modest monthly gain of 2.9% in May and 6.9% year-to-date, reflecting the index’s lower concentration in high-growth technology names.The primary drivers of the rally were a robust first-quarter earnings season, with approximately 78% of S&P 500 companies beating consensus estimates, above the 10-year historical average of 74%, along with sustained momentum from investments in artificial intelligence. Continued strength in semiconductors, defense, and energy production contributed to broad-based sector gains. Small- and mid-cap stocks also participated meaningfully, with the Russell 2000 Index adding 4.4% in May and posting an impressive 18% gain year-to-date through May, consistent with the broadening of market leadership that strategists had anticipated for 2026.International Equities. Led by emerging markets, international equities also delivered strong returns in May, underscoring the global nature of the equity rally in 2026. The MSCI ACWI ex USA gained 5.03% in May and its 14.4% year-to-date gain outperformed the S&P 500 while the MSCI Emerging Markets Index surged by 9.7% and 25.6% on a year-to-date basis, driven by technology and AI-related exposure in Asian markets, particularly Taiwan and South Korea, as well as a weaker U.S. dollar that historically amplifies EM returns. China’s advances in AI technology have reinforced investor enthusiasm for the region. Developed market equities also performed at an above average level. The MSCI EAFE Index, which tracks large- and mid-cap stocks in Europe, Australasia, and the Far East, gained 3.2% in May and 8.8% year-to-date through May. Europe benefited from a favorable earnings environment, though lingering geopolitical tensions and shifting government spending priorities, including higher defense outlays, created pockets of uncertainty. Bonds. The U.S. fixed income market experienced yield volatility during May, with the 10-year Treasury yield reaching an intramonth high of 4.67% before settling back to 4.45% at month-end. The 2-year note closed May at 3.98%, keeping the yield curve in positive territory as the Federal Reserve signaled a cautious approach to further rate reductions. With core inflation remaining above the Fed’s 2% target and labor market data sending mixed signals, markets are pricing in a prolonged period of elevated rates, potentially extending into 2027.Despite the yield headwinds, credit markets held up well. The Bloomberg U.S. Aggregate Bond Index posted modest positive returns of 0.31% in May and 0.38% year-to-date as income generation remained the dominant driver of performance. Investment-grade corporate spreads traded in the 70–90 basis point range, and high-yield credit also generated positive returns, up 0.49% and 1.68% since the start of the year reflecting on resilient corporate fundamentals. Municipal bonds continued to offer compelling opportunities, particularly in longer-duration and lower-quality segments, while TIPS remained relevant given ongoing inflation uncertainty. Overseas, fixed income markets delivered slightly better returns as the Bloomberg Global Aggregate ex USD Index posted a gain of 0.35% in May and 0.59% since the start of the year. Sustainable mutual funds and ETFs. Labeled long-term sustainable mutual funds and ETFs, a total of 1,022 funds/share classes that ended May with $403.3 billion in net assets, up $16.1 billion, added an average of 3.2% in May and 9.5% since the start of the year. ETF, with their slightly higher stock content and higher technology exposure, averaging 75% versus 68.5% for mutual funds, recorded an average gain of 4.66% while mutual funds added an average of 2.88%, or almost 2% lower. International funds registered an average gain of 4.3% and 13.9% year-to-date while US Equity funds gained an average of 4.2% and 10% over the first five months of 2026. Taxable bond funds posted a modest average gain of 0.35% in May and 0.69% year-to-date. Near-term results posted by selected sustainable indices. [Comprised of six indices, these benchmarks were chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices]. All six sustainable indices posted positive results in May, ranging from 0.31% posted by the Bloomberg MSCI US Aggregate ESG Focus Index to 4.56% recorded by the MSCI USA Selection Index. That said, only one of the six MSCI sustainable indices outperformed its conventional counterpart in May. The index, the MSCI EAFE Selection Index, exceeded by one basis point the performance of the MSCI EAFE Index (Net). The other four stock-oriented indices, including the MSCI USA Selection Index, the MSCI USA Small Cap Selection Index, the MSCI ACWI ex USA Selection Index and the MSCI EM Selection Index, underperformed by a range starting from 0.67% to 6.29%. The sixth index, the Bloomberg MSCI US Aggregate Focus Index matched its conventional counterpart, the Bloomberg US Aggregate Bond Index as both posted returns of 0.312%. The poor relative showing in May extends to include declines over the three-five- and twelve-month trailing intervals. Moreover, the variations in returns were wider than usual. The MSCI Emerging Markets Selection Index trailed its conventional counterpart by 16.44% over the trailing twelve months while the MSCI Small Cap Selection Index lagged by 8.37%. Regarding the Emerging Markets Select Index, its massive overweight position in TSMC at 27.58% vs. 14.21% in the parent performed well on AI semiconductor demand, however, the rest of the EM market (particularly Korean chipmakers) appears to have outpaced it. So, the Selection Index's extreme TSMC concentration, combined with negligible Korea exposure, means that it captured the Taiwan AI story but missed the Korean AI memory story. It should be noted that the six indices have been chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices,Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index continues through the month of May to be the only one of the five stock-oriented benchmarks that is posting consistent outperformance results over the three-, five- and ten-year intervals. While also posting positive results, the other four indices underperformed when compared to their conventional counterparts over the trailing three- five- and ten-year intervals. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. At the end of May, the relative results over the trailing three- and five-year periods are positive. Sources: Morningstar, MSCI, SIFMA, Environmental Finance and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-May 2026

Sustainable Bottom Line: Assets of L-T focused sustainable funds gained $26.2 billion in April due to market appreciation and net inflows of about $2.7 billion. Long-Term Net Assets of Focused Sustainable Mutual Funds and ETFs: 2025 – 4/30/2026 The powerful April rebound in global equities produced a strong headwind that led to a month-over-month gain of $26.2 billion in net assets, a combination of capital appreciation and net positive flows, to end the month at $387.2 billion for long-term labeled sustainable mutual funds and ETFs based on Morningstar’s classifications. This was across a combined total of about 533 mutual funds, consisting of 1,091 share classes, and 190 ETFs. The number of mutual funds and ETFs continued to decline due to fund liquidations/delistings and/or rebrandings, a trend that may be exacerbated due to the upcoming effective date for the implementation of the SEC’s amended Names Rule. See article entitled Sustainable funds meet the names rule: What to watch for as the June deadline lands at https://sustainableinvest.com/sustainable-funds-meet-the-names-rule-what-to-watch-for-as-the-june-deadline-lands/. April’s gain in net assets was driven by the addition of $15.7 billion by mutual funds while ETFs added $11.6 billion in net assets. Using a back of the envelope calculation, however, long-term mutual funds experienced net cash outflows totaling an estimated $2.9 billion whereas ETFs recorded estimated net inflows of $4.4 billion, for a net inflow of $2.7 billion in assets. Since the start of the year, labeled long-term sustainable mutual funds and ETFs added $12.6 billion in net assets, however, the segment recorded about $10 billion in estimated net outflows. New Focused Sustainable Fund Launches: 2025 – 4/30/2026 There were no new focused sustainable fund launches recorded in April 2026, based on Morningstar reporting, which was also the case over the previous three months. This compares to four fund launches during the same four-month period in 2025. The drop-off in new listings continues to reflect the dramatic slowdown in new focused or labeled long-term sustainable fund offerings, starting in mid-2023 to-date, coincident with a political backlash against ESG investing and potentially some diminishing level of response to ESG-labeled fund products. Compliance with the SEC’s amended Names Rule that goes into effect in June 2026 may also be holding back new fund launches. During the month of April there were a few fund mergers and liquidations, including but not limited to funds offered by Jackson National Life (JNL) and Nuveen. The JNL/AB Sustainable Global Thematic Fund, consisting of two share classes and valued at $25.1 million, was merged as of April 29, 2026. Also, two Nuveen managed funds were liquidated. These included the Nuveen Sustainable Core ETF with $6.3 million in net assets and the Nuveen Winslow Large Cap Growth ESG Fund with $10.4 million in assets. Green, Social and Sustainability Bonds Issuance to 3/31/2026 No major data provider has yet published a clear, standalone tally for April 2026 sustainable debt issuance. For a recap of first-quarter results, see April’s Sustainable Investing Monitor. In the meantime, Bloomberg reported that China's Ministry of Finance priced in the last week of May 6 billion yuan (about USD $885 million) in sovereign green bonds in Hong Kong. This marked Beijing’s first green bond issuance in the city and its second offshore RMB-denominated green sovereign bond issuance following its April 2025 London debut. The deal reflects China’s March 2026 pledge to expand international ESG debt market activity and deepen the offshore yuan bond market. For fixed-income investors, the issuance signals continued sovereign green bond market development in Asia and growing Chinese government appetite for international ESG capital market engagement--according to Bloomberg. This would also align with World Bank and Ministry of Finance data showing sovereigns accounted for 45% of labeled bond issuance in the first quarter of 2026, with emerging-market sovereigns such as Mexico, Chile, and Thailand leading volumes. China’s return is a notable addition to that group. S-T Relative Performance of Selected Sustainable Indices vs. Conventional Indices to 4/30/2026 Markets in Review. April delivered a powerful rebound in global equities following the geopolitical shock that battered markets in March. U.S. Equities. US stocks led the charge, with the S&P 500 surging 10.4%, its best monthly return this year and its best month since November 2020. At the same time, the Nasdaq Composite Index jumped 15.3% and the Dow Jones Industrial Average gained 7.2%. Small caps joined the rally, with the Russell 2000 Index posting a gain of 12.2%. The drivers were a resumption of AI-related optimism, an Iran ceasefire that calmed Persian Gulf tensions, and a strong Q1 earnings season in which 50 of 53 Nasdaq-100 reporters beat EPS expectations by an average of 16%, prompting upward revisions to full-year estimates. Technology and semiconductors led, with the Nasdaq-100 Tech Sector up 23.5%, while Health Care lagged as investors rotated into higher-beta growth names. International Equities. International equities also recovered, registering a gain of 9.7% according to the MSCI ACWI ex USA Index, with developed markets outperforming US large caps as a weaker dollar and cheaper valuations drew flows into European and Japanese shares. Emerging markets continued their relatively resilient run, gaining 14.7%, after a punishing March during which the MSCI Emerging Markets Index gave up 13.1%. Bonds. Bonds were more subdued, with the Bloomberg US Aggregate Bond Index adding 0.11% in April. The 10-year Treasury yield ranged during the month between 4.26% and a high of 4.40% at month end before drifting higher into early May, while the 30-year almost reached 5.0% (reaching 5.18% by the third week in May) on renewed inflation fears fed by rising fuel prices and ongoing fiscal concerns and amid persistent foreign selling, including from the People's Bank of China. International sovereign bonds faced similar pressure as long-end yields stayed elevated. Sustainable mutual funds and ETFs. Labeled sustainable long-term mutual funds and ETFs participated meaningfully in the rally, gaining an average of 7.3% in April and 6.02% year-to-date. ETFs, with their greater overall exposure to riskier equities, added an average of 8.8% while mutual funds recorded an average gain of 7.0%. U.S equity and international ETFs delivered even higher gains. Thematic clean-energy and smart-grid funds extended strong trailing-12-month gains, while sustainable taxable bond funds posted more modest returns, gaining an average of 0.57% and 0.30% year-to-date. Near-term results posted by selected sustainable indices. Three of six MSCI sustainable indices outperformed their conventional counterpart in April. These Selection indices are chosen to represent a broad cross section of the sustainable investing market segment using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices. The one-month results reflected an improvement over the outperformance/underperformance record registered during the first three months of the year. Outperformance in April was recorded by the MSCI USA Selection Index, MSCI EAFE Selection Index and the Bloomberg MSCI US Aggregate ESG Focus Index that eclipsed their conventional counterparts by 1.29%, 0.36% and .01%, in that order. Only two of these benchmarks, namely the MSCI USA Selection Index and the Bloomberg MSCI US Aggregate ESG Focus Index, also led during the trailing 12-month interval. That said, the one-year results posted by the MSCI USA Small Cap Selection Index and MSCI Emerging Markets Selection Index reflected wide negative 7.32% and 7.02% variations relative to their conventional counterparts. Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index continues through the month of April to be the only one of the five stock-oriented benchmarks that is posting consistent outperformance results over the three-, five- and ten-year intervals. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. Sources: Morningstar, MSCI, SIFMA and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-April 2026

Sustainable Bottom Line: Assets of L-T focused sustainable funds declined by $25 billion in March due to market depreciation and outflows of about $5.3 billion. Long-Term Net Assets of Focused Sustainable Mutual Funds and ETFs: 2025 – 3/31/2026The total net assets of focused sustainable long-term funds, including mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, dropped by $25 billion in March to end the first quarter of 2026 with a combined total of $358.3 billion. This was across a combined total of 541 funds/1103 funds/share classes, representing 349 mutual funds/911 funds/share classes and 192 ETFs, reflecting another monthly decline in the number of funds/share classes versus February from 947 funds/share classes and 193 ETFs—largely attributable to the rebranding of the Putnam Sustainable Retirement Funds, a series of target-date funds with $2.9 billion in assets at the end of February designed to provide retirement income through a diversified portfolio that prioritizes positive ESG (environmental, social, and governance) criteria. Mutual fund net assets dropped to $225.1 billion while ETFs closed the month at $133.2 billion.Following gains recorded during the first two months of the year, the drop in assets reflected the impacts of both market depreciation (focused sustainable long-term funds gave up 5.1% in March), net outflows and fund closures. Using a back of the envelope calculation, both long-term mutual funds and ETFs experienced cash outflows totaling an estimated $5.3 billion, with mutual funds accounting for $3.2 billion or 60% of the total. ETFs gave up and estimated $1.9 billion.Estimated net outflows picked up momentum in March, resulting in first quarter net outflows in the amount of $11.4 billion. That said, according to ICI Research, environmentally focused funds continue to benefit from inflows. This is also the case in February for Religious Values Focus funds. ICI Research data tracks mutual funds and ETFs that invest according to ESG criteria based on a broader set of definitions, reporting that assets of ESG funds, a total of 729 investment vehicles, reached $631.0 billion at the end of February, the latest month for which data is available.New Focused Sustainable Fund Launches: 2025 – 3/31/2026There were no new focused sustainable fund launches recorded in March 2026, based on Morningstar reporting, which was also the case over the previous two months and the same period in 2025. The drop-off in new listings continues to reflect the dramatic slowdown in new focused or labeled long-term sustainable fund offerings, starting in mid-2023 to-date, coincident with a political backlash against ESG investing and potentially some diminishing level of response to ESG-labeled fund products.That said, Morningstar excludes most faith-based funds from its universe of sustainable investing funds—a segment consisting of 202 funds with $183.5 billion in assets that is included in the ICI Research data as of the end of February. And on this front, on March 19, 2026, Faith Investor Services (FIS) announced the launch of three new actively managed faith-based ETFs, offering investors options that align with faith-based values. Consisting of two fixed income funds and one equity fund, these investment vehicles expand the universe of focused sustainable long-term mutual funds that, according to many practitioners qualify as sustainable investing funds. These are funds that employ approaches ranging from values-based investing, including faith-based funds, screening and exclusionary approaches, impact investing, thematic investing, ESG integration, engagement, advocacy and proxy voting as well as structural sustainability.Green, Social and Sustainability Bonds Issuance to 3/31/2026 According to SIFMA, global debt (including green, social and sustainability bonds) issuance reached $233.0 billion versus $167.7 issued during the fourth quarter of 2025, a gain of $65.3 billion or 39%. This also represents the highest quarterly issuance level since the first quarter of 2025 when $241.4 billion in sustainable bonds were issued. Measured against that level, sustainable debt instruments recorded a year-over-year decline of $8.4 billion, or 3.5%.The recorded global gain stood in contrast to volume statistics in the US, which experienced a $6.7 billion decline to $23.3 billion in the first quarter, or a 22.2% drop. This was the lowest quarterly volume since the fourth quarter of 2022 when $10.7 billion in sustainable debt was issued. It also reflected a significant drop from the $57.0 billion in issuance recorded in the first quarter of 2025, a decline of $33.7 billion or 59.1%. The fall-off in the US, which challenged gains of 13.7% and 10.3% achieved in long-term US fixed income bond issuance, may have been linked to declines in the origination of sustainability and social bonds.Globally, green bonds accounted for 64.1% of issuances in the first quarter while in the US, green bonds accounted for 44.4% of listings. Globally, sustainability and social bonds accounted for 18.3% and 17.6% of issuances, respectively, whereas higher percentages of 29.5% and 26.2%, respectively, were registered in the US.It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes, transition bonds and loans that are now tracked and now account for almost 50% of the sustainable debt market. (Note: Prior period quarterly data reflect any latest adjustments). S-T Relative Performance of Selected Sustainable Indices vs. Conventional Indices to 3/31/2026 Markets in Review. US military operations against Iran, starting on February 28, produced an oil shock that saw oil prices move up to over $100 a barrel, which triggered a surge in energy prices, reignited near-term inflation concerns, drove Treasury yields moved higher, and caused a broad, correlated selloff across risk assets. That said, these and other concerns seemed to be cast aside at the very end of Q1 as “buy the dip” fervor took over. It continued into April.U.S Equities. Brent crude registered its strongest monthly gain since the 1970s, rising 63% in March. The S&P 500, which hesitated during the first four days of March, gave up 5.0% for the month and recorded a decline of 4.3% for the quarter. At the same time, the Dow Jones Industrial Average and NASDAQ Composite dropped 5.2% and 4.7% in March and 3.2% and 7.0% over the quarter, respectively. The S&P 400 mid cap index declined by 5.4% while the small cap S&P 600 Index experienced a more limited decline of 4.1%. Value stocks outperformed growth stocks across the range of market capitalizations, but both growth and value moved lower, underscoring that the selloff was driven by macro de-risking rather than style rotation. Energy was the standout sector in March, rising between 9.1% and 10.7%.International Equities. Developed non-US equities, as measured by the MSCI EAFE, fell 10.3% in March alone. For the month and full quarter, the MSCI ACWI ex USA Index returned –10.7% and -0.71%, respectively, trailing in March by almost 6% but outperforming the S&P 500's -4.4% in the quarter. In the equity market more broadly, the rotation away from mega-cap tech names earlier in Q1 helped value stocks (+1.3%) beat growth stocks (-8.4%), while emerging market equities held relatively flat at -0.1% for the quarter. European markets, which had entered 2026 with strong momentum from fiscal stimulus and defense spending themes, were hit hard in March by their greater exposure to elevated energy costs.Bonds. The Bloomberg US Aggregate Bond Index returned almost -1.8% in March and -0.05% for the quarter, while corporate bonds returned -0.5%. The US high yield market (-0.5%) outperformed its European equivalent (-1.7%), and global investment grade bonds returned -1.3% in Q1. UK Gilts were the laggard among sovereigns, falling 2.0% for the quarter. The 10-year Treasury yield rose by 33 basis points in March to 4.30% after hitting 4.44% a few days earlier, as bonds were pressured by reduced rate-cut expectations. The Federal Reserve held the federal funds rate at 3.50–3.75%, with Chair Powell acknowledging stalled inflation progress.Focused sustainable L-T mutual funds and ETFs. Against this backdrop, positive returns were extraordinarily scarce across the universe of 541 mutual funds and ETFs/1,103 funds/share classes consisting of focused or labelled sustainable long-term funds as classified by Morningstar, accounting for just 2% of the funds. All fund categories experienced average declines in March, including sector funds that posted an average decline of 4.82% even while trailing 12-month returns were up an average of almost 45% on the strength of outstanding performance by clean and renewable energy funds. Long-term funds recorded an average drop of 5.13% in March and 1.28% in the first quarter. Taxable bond funds, US equity funds and international funds posted average declines in March of -1.60%, 5.35% and 8.56%, respectively, and -0.39%, -3.42% and -0.52% for the quarter. Structurally, funds with low or no exposure to fossil fuels were penalized during a quarter in which energy was by far the top-performing sector.Short-term performance results posted by selected sustainable indices. A narrow improvement over the last two months, two of six selected MSCI sustainable indices outperformed their conventional counterparts. The indices have been chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices.The two outperforming indices, both with an international focus, are the MSCI ACWI ex USA Selection index and the MSCI Emerging Markets Selection Index that outperformed their conventional counterparts by 0.29% and 1.78%, respectively. The same indices, however, fell behind their conventional counterparts over the first quarter and trailing twelve months. In fact, all but the MSCI USA Selection Index, which eclipsed its conventional MSCI USA Index over the trailing twelve months, underperformed in the first quarter and trailing twelve months.At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index continued to post results consistently in line with its conventional benchmark, the Bloomberg US Aggregate Bond Index. It was off by 1 basis point in March, but it matched its conventional counterpart over the three-month interval while exceeding by two bps over the trailing one-year interval.Intermediate-to-long term results posted by selected sustainable indices (not shown in chart). The MSCI USA Selection Index is the only stock index to post performance results that are largely in line with its MSCI USA counterpart index. For the most part, the three other Select indices are trailing behind their conventional benchmark over the three-, five- and ten-year intervals to the end of March.With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction.Sources: Morningstar, ICI, Research, MSCI, SIFMA, and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-March 2026

Sustainable Bottom Line: Assets of L-T sustainable mutual funds and ETFs gained $1.5 billion in February to reach $383.3 billion but experienced net outflows again. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Benefiting from market appreciation for the second month in a row but still experiencing net outflows, the total net assets of focused sustainable long-term funds, including mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, experienced an increase in February and closed the month with $383.3 billion in net assets. This was across a combined total of 1,140 funds/share classes representing 329 mutual funds/947 share classes and 193 ETFs, reflecting another monthly decline in the number of funds/share classes from 972 funds/share classes and 196 ETFs. The decline is attributable to fund liquidations/delistings and/or rebrandings. Total focused sustainable long-term mutual fund assets gained $1.5 billion in February, registering a narrow but still positive 0.4% increase. Using a back of the envelope calculation, both long-term mutual funds and ETFs experienced cash outflows totaling an estimated $3.9 billion, with mutual funds accounting for 89% or so of the outflows. Estimated net outflows for mutual funds were $3.5 billion while ETFs sustained net outflows in the amount of $0.45 billion. That said, not all categories of mutual funds and ETFs are experiencing outflows. According to ICI Research, environmentally focused funds continue to benefit from inflows. ICI Research data tracks mutual funds and ETFs that invest according to ESG criteria based on a broader set of definitions, reporting that assets of ESG funds reached $629 billion at the end of January, the latest month for which data is available. New Sustainable Fund Launches: 2024 - PresentThere were no new funds launched in February 2026, based on Morningstar reporting, which was also the case in the previous month and compared to February 2025. The drop-off in new listings continues to reflect the dramatic slowdown in new focused or labeled long-term sustainable fund offerings, starting in mid-2023 to-date, coincident with a political backlash against ESG investing and some diminishing level of investor response to ESG-labeled fund products. That said, as noted above, ICI Research indicates that environmentally focused funds continued to benefit from cash inflows. During the month of February four mutual funds/20 share classes were liquidated while 3 ETFs were either liquidated or rebranded. These involved offerings by Invesco, Goldman Sachs, Neuberger Berman and DWS Xtrackers. In most cases, these actions seem to have been taken with respect to funds that failed to achieve scale, consistent perhaps with year-end product rationalization decisions common across asset managers and against the continuing backdrop of a political backlash against ESG and some level of diminished investor appetite for such products. In the case of Invesco and Goldman Sachs, in particular, another contributing factor may have been prior regulatory scrutiny regarding each firm’s ESG claims. Green, Social and Sustainability Bonds Issuance (to December 31, 2025) Full Year 2025: The Headline NumbersNote: Statistics regarding sustainable debt issuances varies by data source in large part due to the nature of coverage and definitions of terms.Based on Bloomberg BNEF data and a broader definition of sustainable debt that includes loans, ING Research reported total global sustainable finance issuance (excluding asset-backed securities) of $1,539 billion in 2025, a modest decline from $1,668 billion in 2024, but comfortably above the 2023 level. Separately, Bloomberg Intelligence data showed that global green bond and loan issuance hit a record $947 billion in 2025. Using a separate set of data that includes the issuance of green, social, sustainability, and sustainability-linked bonds, the Climate Bonds Initiative (CBI) reported that aligned cumulative volume through the end of 2025 reached $6.8 trillion. Annual aligned issuance, according to CBI, surpassed $1 trillion for the third consecutive year, with more than 400 new issuers entering the sustainable debt market in 2025.On a broader basis that includes all self-labeled issuance regardless of alignment with CBI's science-based methodologies, Climate Bonds had recorded $8.1 trillion in cumulative green, social and sustainability bonds and sustainability-linked bonds (SLBs) (collectively GSS+) volume by end of 2025, of which $6.8 trillion (83%) was found to be aligned.2025 Issuance by Product TypeGreen-labelled bonds remained the dominant segment, accounting for 64% of aligned GSS+ issuance in 2025 and surpassing $4 trillion in cumulative issuance. In 2025 alone, green bonds totaled $653.5 billion, the second-highest annual volume on record. Sustainability bonds recorded $217.3 billion in annual issuance, while social bonds reached $141.2 billion. Sustainability-linked bonds showed renewed growth, with aligned issuance rising to $14 billion, a 46% increase year-on-year.Key Themes & Trends in 2025-Energy transition debt surged: BNEF reported energy transition debt issuance totaled $1.2 trillion in 2025, up 17% from 2024, credited to growth in corporate and project finance flows, each up 20% respectively.-Issuer type divergence: The steepest year-on-year drop in sustainable issuance came from corporates, followed by a milder dip from governments, while financials and supranationals both saw year-on-year growth.-Sustainability-linked loans softened: Sustainability-linked loan (SLL) issuance registered a visible decline year-on-year, though ING noted that BNEF data may be highly under-reported due to many private deals not yet added to the dataset.-First Tokyo resilience bond: The world’s first Climate Bonds Certified resilience bond was issued by the Tokyo Metropolitan Government in 2025, demonstrating strong investor demand for credible climate adaptation investments.Early 2026 (January–February) — Preliminary ActivityFormal aggregate statistics for Q1 2026 are not yet published, but market signals are encouraging:-France increased the amount it can potentially raise from green bonds in 2026 to €23 billion, laying the foundations for potentially record-breaking annual volumes from the major sovereign issuer.-The UK announced plans to raise at least £12 billion from green gilts in the upcoming year.-Early 2026 loan data show the sustainability-linked label making up 53% of labeled loan issuance so far in 2026, down from over 70% seen in 2020–2024, possibly reflecting a shift toward green loans. That said, under-reporting of late-2025 SLL deals could be a factor.Full Year 2026 OutlookING Research forecasts that global sustainable finance issuance will rise to approximately $1,621 billion in 2026, with green bonds expected to reach $700 billion and green loans to reach $255 billion.Moody's forecasts global sustainable bond issuance (bonds only, excluding loans) of $900 billion in 2026, broadly flat from 2025, comprising $530 billion of green bonds, $190 billion of sustainability bonds, $115 billion of social bonds, $40 billion of transition bonds, and $25 billion of sustainability-linked bonds.Europe is estimated to account for approximately 42% of new sustainable bond issuance volume in 2026, supported by significant refinancing needs as record sustainable bond maturities come due — particularly in the green bond segment.According to SIFMA, global debt (including green, social and sustainability bonds) issuance reached $850.8 billion versus $874 billion in 2024, or a decline of 2.7%. While narrowly lower, this is still the third highest dollar volume recorded since 2020. During this six-year interval, the highest volume was recorded in 2021($911.3 billion) and in 2024 ($874.0 billion). Green bonds accounted for 63% of the volume, slightly higher than the 62% in 2024, followed by sustainability bonds at 25% and social bonds at 12%. In the US, sustainable debt volume picked up, rising from $166.3 billion issued in 2024 to $179.3 billion last year, or an increase of 7.8%. This was the highest level of issuance achieved in the US since 2020, exceeding last year’s $166.3 billion and 152.5 billion issued in 2021. Still, the increase fell short of the 9.2% gain recorded by total long term bond issuance in the US which reached $11.3 trillion, up from $10.3 trillion in 2024. Unlike the global profile, 56% of sustainable debt issuance in 2025 was attributable to sustainability bonds while 33% was in the form of green bonds. It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes, transition bonds and loans that are now tracked and now account for almost 50% of the sustainable debt market. (Note: Prior period quarterly data reflect any latest adjustments). Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional IndicesMarkets in Review. February proved to be a month of rotation as investors continued their shift away from mega-cap U.S. technology stocks, with market performance diverging sharply depending on where investors chose to look. Markets were buffeted by multiple crosswinds during the month, from positive economic data and signs of cooling inflation to reactions to the US Supreme Court ruling on the reliance on the International Economic Emergency Powers Act to levy reciprocal tariffs, to increasing tensions between the US and Iran that led to open hostilities after the month closed. U.S. Equities. U.S. equities delivered mixed results. The S&P 500 slipped 0.76% while the Nasdaq 100 fell approximately 2.3%, its worst monthly decline since March 2025. The primary drag was a sharp pullback in mega-cap technology and AI-adjacent names, reflected in the 7.3% drop recorded by the Magnificent Seven Index as investors reassessed stretched valuations. The Dow Jones Industrial Average, less exposed to growth tech, edged up 0.3%. Beneath the surface, however, the picture was more constructive. The S&P 500 Equal Weight Index rose by 3.5%, its best month since May 2025, while the S&P MidCap 400 gained 4.1% and the S&P SmallCap 600 added almost 2.2% after picking up 5.6% the previous month, reflecting a genuine broadening of market participation toward value among large cap stocks, in particular, energy, materials and consumer staples, as well as small caps. The small cap index registered a 12-month gain of 17.9% versus 17% for the S&P 500 Index. International Equities. International equity funds outshone their U.S. counterparts. The MSCI ACWI ex US posted a strong gain of 5.02% while Pacific and Far East developed and emerging markets stocks continued their impressive streak, particularly South Korea and Taiwan that benefited from robust semiconductor demand tied to the ongoing AI infrastructure buildout. Emerging markets delivered even stronger results, adding 5.5% and bringing up the gains over the trailing twelve months to an outstanding 50%. Bonds. Bonds rallied meaningfully as the 10-year Treasury yield fell 29 basis points to 3.97%, one of the largest monthly drops in a year. Moderating inflation expectations and growing conviction around future rate cuts drove the move, with the Bloomberg U.S. Aggregate Bond Index posting modest gains. High-yield bonds, however, slipped slightly amid private credit default concerns.Sustainable mutual funds and ETFs. Bolstered by the performance of international equity and taxable fixed income funds, focused long-term sustainable mutual funds and ETFs gained an average of 1.40% in February. Returns across all funds ranged from a low of -13.86% recorded by a fund investing in European carbon allowances to a high of 11.32% by a fund leading a cohort of the top ten performing funds in February that stand at the intersection of the global energy transition, critical mineral supply chains and next generation technology infrastructure. International equity funds gained an average of 3.2% while taxable bond funds added 1.0%. US equity funds lagged but managed to squeeze out a gain of 0.03%. Near-term results posted by selected sustainable indices. Just like last month, only one of six MSCI sustainable indices, chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices, outperformed its conventional counterpart in February. This month, however, it was the MSCI USA Small Cap Selection Index that outperformed its conventional counterpart, beating it by 76 basis points (bps). The same index led its conventional MSCI USA Small Cap Index counterpart for the trailing three-months by 3 bps, but this was not the case on a year-to-date or trailing twelve-month intervals when the index lagged by 17 and 481 bps, respectively. At the same time, the three international indices, the MSCI ACWI ex USA Selection Index, the MSCI EAFE Selection Index and the MSCI Emerging Market Selection Index each again trailed its conventional counterpart in February by 131 bps, 51 bps and 293 bps, respectively. On the other hand, the Bloomberg MSCI US Aggregate ESG Focus Index produced results in line with its conventional benchmark, the Bloomberg US Aggregate Bond Index. It also matched its conventional counterpart over the year-to-date and three-month intervals while beating its conventional benchmark by 3 bps over the full one-year time horizon to the end of February. Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index continued over the month of February to be the only one of the five equity-oriented benchmarks that is posting consistent outperformance results over the three-, five- and ten-year intervals to the end of February. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. Sources: Morningstar, MSCI, SIFMA, Environmental Finance and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-February 2026

Sustainable Bottom Line: Assets of sustainable long-term mutual funds and ETFs reached $382 billion but recorded net outflows while selected sustainable indices trailed conventional counterparts. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Benefiting from market appreciation but still experiencing net outflows, the total net assets of focused sustainable long-term funds attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, experienced an increase in January and closed the month with $381.9 billion in net assets. This was across a combined total of 1,163 funds/share classes representing about 321 mutual funds/972 share classes and 196 ETFs, reflecting another monthly decline in the number of funds and share classes. Total focused sustainable long-term mutual fund assets gained $7.3 billion in January, for an increase of 1.9%. Much of that gain is attributable to ETFs. The segment recorded a gain in assets in the amount of $6.2 billion, or 4.6%. Using a simple back of the envelope calculation, ETFs enjoyed net inflows in the amount of $1.4 billion. On the other hand, mutual funds gained $1.1 billion in assets, or 0.5%, while experiencing net outflows of about $3.9 billion. New Sustainable Fund Launches There were no new funds launched in January 2026 which was also the case in January 2025 versus one new ETF launch in January 2024. The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings, starting in mid-2023 to-date. Also in January, there were several fund liquidations and re-brandings, including, for example, liquidations due to lack of traction by AB Global, Boston Partners Global, Cromwell Investment Advisors and Franklin Templeton Investments. At the same time, the $100.2 million John Hancock ESG Large Cap Core Fund was reorganized into the John Hancock Fundamental Large Cap Core Fund, and Impax Asset Management converted its Impax Global Sustainable Infrastructure Fund into the Impax Global Infrastructure ETF that was listed on February 2, 2026. While the ETF dropped the sustainable reference from its name, the actively managed fund continues to follow a sustainable investing approach, investing in companies that the adviser believes are well positioned to provide infrastructure essential for the transition to a more sustainable global economy, integrating environmental, social, and governance (ESG) analysis into portfolio construction. Green, Social and Sustainability Bonds Issuance (to December 31, 2025) According to SIFMA, global debt (including green, social and sustainability bonds) issuance reached $850.8 billion versus $874 billion in 2024, or a decline of 2.7%. While narrowly lower, this is still the third highest dollar volume recorded since 2020. During this six-year interval, the highest volumes were recorded in 2021($911.3 billion) and in 2024 ($874.0 billion). Green bonds accounted for 63% of the volume in 2025, slightly higher than the 62% in 2024, followed by sustainability bonds at 25% and social bonds at 12%. In the US, sustainable debt volume actually picked up, rising from $166.3 billion issued in 2024 to $179.3 billion last year, or an increase of 7.8%. This was the highest level of issuance achieved in the US since 2020, exceeding last year’s $166.3 billion and $152.5 billion issued in 2021. Still, the increase fell short of the 9.2% gain recorded by total long term bond issuance in the US which reached $11.3 trillion, up from $10.3 trillion in 2024. Unlike the global profile, 56% of US sustainable debt issuance in 2025 was attributable to sustainability bonds while 33% was in the form of green bonds. It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes, transition bonds and loans that are now tracked and now account for almost 50% of the sustainable debt market. (Note: Prior period quarterly data reflect any latest adjustments). According to preliminary data published by Environmental Finance, sustainable bond and loan volumes are estimated to have fallen by a fifth to around $1.6 trillion in 2025. It is further estimated that final sustainable debt volumes for 2025 will be between $1.63 trillion and $1.66 trillion, down from the record $2.03 trillion recorded in 2024. This includes any transactions labelled as green, social, sustainability, sustainability-linked or transition bonds and loans as well as sub-labels such as blue, gender, and nature debt. Sustainable bond volumes are expected to be between $848 billion and $871 billion, with sustainable loan volumes between $782 billion and $793 billion. Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional Indices Market overview. While January was volatile for financial markets, given heightened geopolitical tensions following the US military actions in Venezuela, investors’ appetite for risk increased. Global equities rose almost 3% during the month, based on the MSCI ACWI Index (NR) that tracks large and mid-cap companies, while global bonds posted positive but narrow results. US equities. In the US, the S&P 500 finished up 1.45%, briefly climbing above 7,000 for the first time, reflecting early-year optimism. The Dow Jones Industrial Average gained 1.8%, extending its rally to nine consecutive months and marking the benchmark’s best streak since 2018. The Nasdaq Composite rose more modestly, up 0.97%. Key drivers included constructive Q4 earnings, strength in energy and precious metals, and ongoing enthusiasm around AI. However, technology stocks faced mid-month volatility from sector rotation and regulatory concerns. Diversification away from US large caps continued to play out. Within the US, small caps had a strong start to the year, up over 5% according to the Russell 2000 Index, while the Magnificent Seven stocks rose only 1% in January. At the same time, value outperformed growth stocks across the range of large cap, mid cap and small cap stocks. The Federal Reserve held its interest rate target range at 3.50–3.75%, balancing inflation pressures, with CPI around 2.7% year-over-year, against a resilient labor market. International stock markets. International markets, up 5.98% according to the MSCI ACWI ex USA Index, posted the best performance results since November 2023 as economic and inflation data reflected better than expected outcomes. The index was powered by the performance of emerging markets, followed by developed markets in Asia, ex Japan (+8.21%) and (Europe (+5.22%) as European equities hit record highs. Emerging markets had a very strong month, up 8.85%, per the MSCI Emerging Markets Index, boosted by results in Latin America (+15.33%), Eastern Europe (+8.91%) and Asia, ex Japan (+8.27%). Bond markets. U.S. Treasury yields rose modestly across the curve in January, with 2-year and 10-year maturities up 5 basis points and 8 basis points, respectively, as markets adjusted to shifting economic data. Municipal bonds delivered positive returns, supported by lower supply and strong demand. The Bloomberg US Aggregate Bond Index was up 0.11% while global bonds were up 0.94%. Sustainable funds. Focused sustainable long-term mutual funds and ETFs posted an average gain of 2.33% in January. International equity funds led with an average increase of 4.41% while US equity funds added 1.60% and taxable fixed income funds recorded a narrow average return of 0.36%. The best performing investment categories included the Miscellaneous Sector, largely consisting of funds investing in clean and alternative energy (+9.7%), Natural Resources funds (+8.9%) and Diversified Emerging Markets funds (+8.7%). At the other end of the range, laggards included Health funds (-2.0%), Commodities Focused funds (-1.3%) and Large Growth funds (0.85%). Near-term results posted by selected sustainable indices. Just one of six MSCI sustainable Selection indices outperformed its conventional counterpart in January. These indices were chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices, Outperformance was delivered by the MSCI USA Selection Index that continued to outperform its conventional counterpart by 22 basis points (bps). The same index led its conventional MSCI USA Index counterpart for the trailing three-month and twelve-month intervals by posting excess returns of 7 bps and 3.22%, respectively. The MSCI USA Small Cap Selection Index and three international indices, the MSCI ACWI ex USA Selection Index, the MSCI EAFE Selection Index and the MSCI Emerging Market Selection Index each trailed its conventional counterpart in January by 94 bps, 51 bps, 19 bps, and 126 bps, respectively. At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index produced results in line with its conventional benchmark, the Bloomberg US Aggregate Bond Index. It also led its conventional counterpart over the one-year trailing period by a narrow 3 bps. Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index is the only one of the five equity-oriented benchmarks that continues to post consistent outperformance over the three-, five- and ten-year intervals to the end of January. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term intervals that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. Sources: Morningstar, MSCI, SIFMA, Environmental Finance and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-January 2026

Sustainable Bottom Line: Focused sustainable L-T funds trended lower again in December to end 2025 at $374.6 billion while selected sustainable indices trailed conventional counterparts. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs The total net assets of focused sustainable long-term funds attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, experienced a decline in December and closed the month and calendar year with $374.6 billion in assets across a combined total of 1,175 funds/share classes representing 321 mutual funds (updated) and 197 ETFs. This reflects a $3.2 billion decline in assets, or -0.8%, against a backdrop of a narrow 0.37% average total return gain during the month of December. December’s decline in net assets under management reflected a second consecutive monthly decline, following six consecutive monthly gains. These December declines were attributable to net fund outflows of about $4.6 billion. Using a simple back of the envelope calculation, mutual funds in December experienced net outflows estimated at $5.1 billion while ETFs experienced net inflows estimated at $0.33 billion. Over calendar year 2025, combined assets under management increased by $21.3 billion, or 6.0%. The increase was entirely attributable to investment gains posted by mutual funds and ETFs, that added an average of 14.7% and 20.6%, respectively, in 2025. That said, mutual fund assets declined by $1.4 billion while ETFs were entirely responsible for the overall gains by adding $22.7 billion in net assets. Using a simple back of the envelope calculation, mutual funds experienced estimated outflows in the amount of $37 billion while ETFs experienced narrow outflows in the amount of $0.45 billion. New Sustainable Fund Launches There were no new fund launches in December. In 2025, there were ten new launches, matching the number from 2024 and following a total of 68 in 2023. This count does not include any newly created mutual fund share classes. Of the ten new listings this year, six were ETFs and four were mutual funds. The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings, starting in mid-2023 to-date. Also in December, there were a number of fund liquidations and re-brandings, including the Kotak India Equity Fund that dropped its ESG mandate, the BlackRock Sustainable High Yield Fund which liquidated, the Humankind US Stock ETF and Touchstone Climate Transition ETF which were both liquidated as well as the Virtus Global Allocation Fund that dropped its explicit mandate to consider ESG factors. Green, Social and Sustainability Bonds Issuance (to September 30, 2025) Data covering sustainable debt offerings for the entire calendar year and Q4 2025 has still not been finalized. According to preliminary data published by Environmental Finance, sustainable bond and loan volumes are estimated to have fallen by a fifth to around $1.6 trillion in 2025. It is further estimated that final sustainable debt volumes for 2025 will be between $1.63 trillion and $1.66 trillion, down from the record $2.03 trillion recorded in 2024. This includes any transactions labelled as green, social, sustainability, sustainability-linked or transition bonds and loans as well as sub-labels such as blue, gender, and nature debt. Sustainable bond volumes are expected to be between $848 billion and $871 billion, with sustainable loan volumes between $782 billion and $793 billion. The chart displayed above covers the period to September 30, 2025, and is sourced to SIFMA. It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes, transition bonds and loans that are now tracked and now account for almost 50% of the sustainable debt market. (Note: Prior period quarterly data reflect any latest adjustments). Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional Indices Market overview. In 2025, all major asset classes delivered positive returns for the first time since the pandemic, despite pronounced volatility early in the year driven by trade tensions and tariffs; U.S. equities rebounded sharply, with the S&P 500 finishing up 17.9% (total return), propelled by a narrow group of AI-linked mega-caps, rich valuations, and strong second-half momentum tied to fiscal and monetary stimulus, while sector leadership favored Communication Services and Technology. Mid cap and smaller-cap stocks lagged. Bonds recorded their best year in five, with the Bloomberg U.S. Aggregate Bond Index up 7.3% as the Federal Reserve cut rates and yields declined, and credit markets remained resilient. International equities materially outperformed U.S. markets, aided by a roughly 12% decline in the U.S. dollar, with developed and emerging markets both posting gains above 30%. Focused sustainable mutual funds and ETFs also performed strongly, averaging a 15.7% return across more than 1,100 funds, extending a robust three-year performance streak across U.S. equity, international equity, and taxable bond segments. Near-term results posted by selected sustainable indices. Just two of six MSCI sustainable indices, chosen to represent a broad cross section of sustainable investing market segments using ESG criteria and exclusions while maintaining sector weight exposures corresponding to counterpart conventional indices, outperformed their conventional counterparts in December. These included both US market focused indices, the MSCI USA Selection Index and the MSCI Small Cap Selection Index that outperformed their conventional counterparts by 91 basis points (bps) and 20 bps, respectively. The MSCI USA Selection Index eclipsed its conventional MSCI USA Index counterpart for the year by posting a 1.5% excess return. This was not the case for the benchmark tracking small cap companies that lagged for the year by 4.05%. The three international indices, however, the MSCI ACWI ex USA Selection Index, the MSCI EAFE Selection Index and the MSCI Emerging Market Selection Index each trailed its conventional counterpart in December by 74 bps, 65 bps and 96 bps, respectively. For the year, only the MSCI Emerging Market Selection Index managed to outperform, delivering a 1.22% differential in 2025. At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index produced results in line with its conventional benchmark, the Bloomberg US Aggregate Bond Index. But for the year, the sustainable benchmark exceeded its conventional counterpart by a narrow 4 bps. Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index is the only one of the five stock-oriented benchmarks that continues to post consistent outperformance over the three-, five- and ten-year intervals to the end of December. The sustainable benchmark has beaten its counterpart conventional yardstick in six of the last ten years. A close second is the MSCI Emerging Market Index, having outperformed the MSCI Emerging Markets Index over the last three as well as ten years while the 3-year negative differential of 6 bps is very narrow. At the same time, the MSCI Small Cap Select Leaders Index, the MSCI ACWI ex USA Select Index and the MSCI EAFE Select Index are lagging over the 3-, 5-and 10-year time intervals through the end of 2025. By way of illustration, these three Selection indices translate into cumulative 3-year (to December 2025) tradeoffs ranging from $31 per $1,000 invested in the MSCI ACWI ex USA Selection Index to $96 per $1,000 invested in the MSCI Small Cap Select Index. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term interval that it’s been calculated, often times achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. Sources: Morningstar, MSCI, SIFMA, Environmental Finance and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-December 1, 2025

Sustainable Bottom Line: Sustainable funds dip slightly lower in November, at $377.7 billion; no new funds were launched; three of six selected sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs The net assets of focused sustainable long-term funds attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, took a slight dip in November and closed the month with $377.7 billion in net assets across a combined total of 1,188 funds/share classes representing 324 mutual funds/989 share classes and 199 ETFs. This compares to last month’s 1,202 funds/share classes and $380.0 billion in assets under management, or net declines of 14 funds/share classes and $2.3 billion in net assets. The November $2.3 billion aggregate decline in focused sustainable long-term fund assets under management, the first drop following six consecutive monthly gains, is attributable to cash outflows that were offset by capital appreciation experienced by mutual funds. Using a simple back of the envelope calculation, the gains achieved by sustainable long-term funds in November were entirely attributable to capital appreciation of about $0.2 billion. Offsetting this amount were negative flows in the amount of about $2.3 billion. From the start of the year, combined assets under management increased by almost $24.5 billion, or 6.9%. The increase was largely attributable to net gains by ETFs that added some $21.6 billion, or 88% of the total, while the larger mutual funds segment added only about $2.9 billion. New Sustainable Fund LaunchesFocused sustainable new fund listings through November of this year have been adjusted to reflect the back-dated addition in October of the Pictet Cleaner Planet ETF, a $13.2 million fund that integrates sustainability by actively investing in global companies whose products and services support the transition to a cleaner, more sustainable economy, targeting environmental technologies across energy systems, water solutions, pollution control, and climate adaptation. It evaluates and integrates environmental, social, and governance (ESG) factors into its security selection, applies exclusions for controversial activities (e.g., thermal coal and weapons), and pursues active ownership through engagement and responsible voting to influence better corporate ESG practices. The addition of Pictet expands to seven the number of year-to-date new launches (excluding any new mutual fund share classes), compared to nine new listings during the same period in 2024 and 66 in 2023. Of the seven new listings this year, five were ETFs and two were mutual funds. The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings, starting in mid-2023 to date. Also in November, the universe of focused sustainable funds continued its decline. Some of the decline in the number of funds/share classes is attributable to acquisitions and reorganizations, for example the acquisition of Macquarie Asset Management’s US and European public investment business by Nomura Holdings America Inc that resulted in the rebranding of two focused sustainable funds/six share classes and the rebranding of funds now consolidated under Victory Capital Management. At the same time, several funds were liquidated due to their inability to gain traction. For example, Coho Partners liquidated as of November 3rd the Coho Relative Value ESG Fund, the firm’s only focused sustainable fund offering that stood at $0.4 million in net assets. Green, Social and Sustainability Bonds Issuance (to September 30, 2025) Data covering sustainable debt offerings for the fourth quarter 2025 is still preliminary and will be published in January 2026.Global issuance of sustainable debt remained substantial but broadly flat year-over-year during October and early November 2025, reflecting a period of consolidation rather than renewed acceleration. According to Bloomberg-compiled data, total global ESG and sustainable debt issuance reached approximately $918 billion year-to-date through November 7, 2025, essentially unchanged from the comparable 2024 period at $922 billion*. Issuance softness was described as broad-based across green, social, sustainability, sustainability-linked, and municipal ESG instruments, and across both bond and loan formats, suggesting that higher interest rates and issuer selectivity continued to weigh on activity into the fourth quarter. Within the labeled bond universe, green bonds remained the dominant category in 2025, accounting for roughly 55–60% of total labeled issuance, with Europe continuing to represent the largest regional source of supply. While issuance volumes in October and November were sufficient to keep year-to-date totals near prior-year levels, available data indicate no material re-acceleration in global sustainable debt issuance late in the year. *(An article published by Bloomberg on December 25, 2025 reported that "green bond and loan issuance has reached a record $947 billion so far this year, according to data compiled by Bloomberg Intelligence." At first glance, this data seems to fall out of range and requires further reconciliation and validation.).The chart displayed covers the period to September 30, 2025, and is sourced to SIFMA. It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes and transition bonds. (Note: Prior period quarterly data reflect any latest adjustments). Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional IndicesMarket overview. In November 2025, U.S. equity markets posted modest gains amid persistent volatility and shifting investor preferences. Market benchmarks such as the S&P 500 and Dow Jones Industrial Average finished the month slightly positive at 0.25% and 0.48%, respectively, while the Nasdaq Composite lagged with its negative return of 1.45%, pressured by profit-taking in high-valuation technology stocks. Mid-month weakness, which saw the S&P 500 decline by 4.4% for the month, gave way to late-month strength on easing inflation readings, renewed expectations for Federal Reserve policy easing, chiefly due to economic data that has supported an interest rate cut in December. The reopening of the government after the longest government shutdown in history additionally boosted optimism of an economic reacceleration in 2026, while strong results on the corporate earnings front helped bulls keep AI doubters and valuation hawks alike at bay. This backdrop contributed to a modest broad market advance, with value and cyclical sectors gaining relative traction compared to mega-cap technology names. On a year-to-date basis, the three widely quoted U.S. equity indices, the S&P 500, the DJIA and the Nasdaq Composite, ended November up 17.81%, 13.88% and 21.71%, respectively. Developed international markets delivered mixed to narrowly positive performance results in November, with the MSCI EAFE Index posting a gain of 0.62%. European equities were roughly flat to slightly positive, influenced by macroeconomic data and central bank policy outlooks. The United Kingdom saw relative strength as gilt yields eased alongside expectations of Bank of England rate cuts. Emerging markets generally lagged developed counterparts, challenged by geopolitical uncertainty and currency headwinds. The MSCI Emerging Markets Index gave up 2.39%, largely due to weakness in Asia, including China that declined by 2.5%, but helped by positive results in Latin America (+6.06%) and Eastern Europe (+2.69%). Overall, global equities outside the U.S. reflected cautious positioning amid persistent macro and policy uncertainties.Fixed income delivered positive total returns across major segments in November 2025 as sovereign and high-grade credit yields drifted lower. U.S. Treasury yields softened across the curve, lifting prices of intermediate and long duration bonds. The Bloomberg U.S. Aggregate Bond Index recorded a gain of 0.62% in November and 7.46% year-to-date, as investors increasingly priced in the potential for a Federal Reserve easing. Corporate bonds, both investment grade and high yield, also generated positive returns as credit spreads tightened and demand remained resilient. Municipal bonds posted modest gains, adding 0.23% according to the Bloomberg Municipal Bond Index, with stable yields and seasonal technical support. International sovereign bonds, including several Asian markets, attracted inflows driven by yield differentials and diversification interests.Focused sustainable investment funds, including mutual funds and ETFs with explicit sustainable investing criteria, generally kept pace with broader market returns. Sustainable U.S. equity funds added an average of 0.32% while sustainable taxable bond funds posted an average gain of 0.59%. In line with the performance of the MSCI ACWI ex USA that recorded a narrow 0.03% decline, sustainable international funds generated an average decline of 0.35%. On a year-to-date basis, sustainable U.S. equity funds, international funds and taxable bond funds recorded gains of 17.7%, 5.99% and 3.51%, respectively.Near-term results posted by selected sustainable indices. Three of six MSCI sustainable indices, chosen to represent a broad cross section of sustainable investing market segments, outperformed their conventional counterparts in November. These included the MSCI USA Small Cap Selection Index, the MSCI Emerging Markets Selection Index and the Bloomberg MSCI US Aggregate ESG Focus Index that outperformed their conventional counterparts by 83 basis points (bps), 18 bps and one basis point, respectively. Three-month results were stronger, as five of six MSCI Selection indices outperformed while year-to-date results were mixed. Over the 11-month interval, three of six indices underperformed. Two of these benchmarks, the MSCI USA Small Cap Selection Index and the MSCI EAFE Selection Index underperformed by over 4%. Intermediate-to-long term results posted by sustainable indices. The MSCI USA Selection Index is the only one of the six benchmarks that continued to post consistent outperformance over the three-, five- and ten-year intervals to the end of November. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term interval that it’s been calculated, oftentimes achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction.Sources: Morningstar, MSCI, SIFMA and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-November 1, 2025

Sustainable Bottom Line: Sustainable focused long-term funds ended October at $380.01 billion; no new funds were launched; only two of six selected sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, closed the month of October with $380.01billion in net assets across a combined total of 1,202 funds representing 423 mutual funds/999 fund share classes and 203 ETFs. This compares to last month’s 1,209 funds/share classes, for a net drop of seven funds/share classes, largely due to the liquidations of five focused sustainable ETFs during the month. These include three thematic and two diversified equity funds, each with net assets below $15 million. The reading of assets under management was higher for the sixth consecutive month and represents another new milestone relative to the $366.3 billion reached at the end of November 2024. The October increase of almost $5.9 billion, or a gain of 1.6%, is attributable to a combination of capital appreciation as well as cash outflows given that sustainable long-term funds posted an average total return for the month of 1.8%. Much of the net gain in assets is attributable to ETFs which added $4.3 billion or 73% of the total increase in October. At the same time, mutual fund net assets increased by almost $1.6 billion. Using a simple back of the envelope calculation, the gains achieved by sustainable long-term funds in October were entirely attributable to capital appreciation of about $6.7 billion. Offsetting this amount were negative flows in the amount of about $0.8—a drop from last month’s $2.8 billion in estimated outflows. From the start of the year, combined assets under management increased by almost $26.7 billion, or 7.6%. The increase was largely attributable to net gains by ETFs that added some $21.6 billion, or 81% of the total, while the larger mutual funds segment added only about $5.2 billion. New Sustainable Fund Launches Focused sustainable new fund listings (excluding share classes) remained dormant during October, for the second consecutive month. It is also the sixth non-consecutive month so far this year with zero new listings of focused sustainable mutual funds or ETFs. Year-to-date, only six new launches were documented (excluding any new mutual fund share classes), compared to eight new listings during the same period in 2024 and 65 in 2023. Of the six new listings this year, four were ETFs and two were mutual funds. The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings, starting in mid-2023 to date. As noted, new mutual fund share classes are not included in the count of new fund listings. However, there was one mutual fund share class listing with a twist, backdated to September 2025, that may be of interest to fossil fuel free investors, namely The Sphere 500 Climate Fund Institutional Share Class (SPFEX). Also in October, the universe of focused sustainable funds declined further. Not only was there an absence of new fund offerings, but there were also five focused sustainable ETF liquidations during the month. These include three thematic and two diversified equity funds, each with net assets below $15 million, reflecting the risk of closure when funds are unable to achieve break even at around $30 million in assets under management. The funds are: Calvert US Select Equity ETF, Direxion Daily Electric & Autonomous Vehicles Bull 2X ETF, Janus Henderson US Sustainable Equity ETF, JPMorgan Carbon Transition US Equity ETF and JPMorgan Climate Change Solutions ETF. Climate Change Adaptation Categories in Sustainable Bond Issuance Data covering sustainable debt offerings in October has not been finalized yet. In the meantime, a recent ISS STOXX report highlights the emergence of adaptation bonds and the growing integration of climate-resilience criteria within sustainable finance taxonomies—evidence that markets increasingly recognize business and infrastructure vulnerability to climate change. While the energy transition is under way, most scientific assessments project that global temperatures will rise between 2°C and 3°C above pre-industrial levels by 2100, far overshooting the Paris Agreement’s 1.5°C goal. Falling short of global targets means that improving climate resilience is no longer optional but essential. Adaptation finance—capital directed toward strengthening resilience in infrastructure, communities, and ecosystems—is therefore gaining attention and momentum. Intensifying climate-related disasters, which now impose escalating economic losses in both developed and developing economies, have sharpened the financial case for investing in resilience. This is further evidenced by the adoption at the just concluded COP30 deliberations of a call to triple adaptation finance for vulnerable countries by 2035. In the U.S., billion-dollar disasters have become commonplace, while developing economies continue to suffer outsized damage from floods, droughts, heatwaves, and coastal storms. An estimated $7.4 trillion to $8.5 trillion is required annually by 2030 to meet the Paris Climate Agreement’s carbon emissions reduction targets. But an estimated 90% of total climate finance worldwide is allocated to climate mitigation initiatives. Adaptation finance is critically underfunded, running below $65 billion a year or only 1/6th of expected needs by 2030. That said, new research from the World Resources Institute finds that every dollar invested in adaptation can yield more than ten dollars in long-term benefits, from avoided losses to broader economic and social gains. According to ISS Corporate, sustainable debt instruments that include climate-adaptation categories have steadily grown since 2017, peaking at 35 issuances in 2023. Although issuance declined to 13 in 2024, the underlying trend signals that climate adaptation is an increasingly recognized segment of sustainable finance. Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional Indices Market overview. While the latter half of the month was punctuated by significant volatility due to rising U.S.-China trade tensions and a prolonged government shutdown that hampered the release of key economic data, global risk assets nevertheless advanced in October 2025, with equities again outpacing bonds in both the U.S. and overseas markets. The S&P 500, which recorded a 1% gain during the first six trading days of October only to give it up and then climb beyond that level, gained 2.3% for the month. This was the benchmark’s sixth straight monthly increase and near record highs, supported by strong Q3 earnings and enthusiasm around AI-linked mega-cap technology stocks. The NASDAQ Composite added 4.7% and advanced its year-to-date gains to 23.5%. Smaller U.S. companies also participated, with the Russell 2000 up 1.8% and 12.4% since the start of the year. At the same time, the results diverged from another small cap index, the S&P SmallCap 600 Index, due to methodological differences. The S&P 600 registered a decline of 0.9% and a much narrower year-to-date gain of 3.3%. Except for small caps, growth outperformed value stocks. Overseas, the MSCI ACWI ex USA recorded a gain of 2.02%, benefiting from gains recorded in emerging markets that continued to shine. The MSCI Emerging Markets Index added 4.2%, elevating year-to-date gains to 33.6%. Emerging markets were led higher by gains recorded in the Far East and Eastern Europe, with South Korea posting an outsized 22.7% gain for the month and 93.3% increase year-to-date on semiconductor and AI optimism, gaining 22.7% while weaker Chinese data pushed prices lower by 3.8%. Fixed income performance was more muted. The Bloomberg US Aggregate Bond Index posted a gain of 0.62%, marking the third consecutive monthly increase-as a narrow decline in 10-year Treasury yields supported prices but slightly wider credit spreads capped gains. That said, the index is up a strong 6.16% year-to-date and is on track to deliver the best results since 2020. In so doing, it continues to chip away at the significant decline (-13.01%) sustained in 2022 for those investors who remained invested. Globally, core bond markets were close to flat. The Bloomberg Global Aggregate Bond Index slipped 0.25% for the month, as lower government yields were offset by weaker credit and securitized sectors. Overall, October 2025 extended a risk-on pattern: equities, particularly U.S. large-cap growth and AI beneficiaries, continued to lead, while bonds delivered only modest, rate-driven gains, leaving multi-asset investors rewarded for equity exposure but with limited diversification from global fixed income. The market remains sensitive to economic data and corporate earnings, with investors watching for clarity on the Federal Reserve's next moves and the potential for an economic slowdown despite positive third-quarter earnings reports. Against this backdrop, focused sustainable long-term funds recorded an average monthly gain of 1.78% and a year-to-date increase of 14.38%. Sustainable U.S. equity funds gained an average 1.77%, international equities exceeded that level by 16 basis points, landing at a positive 1.93% and fixed income funds gained an average of 0.51%. The best performing sectors included health care, renewable energy and technology while the laggards included China region (one fund), real estate, and small cap stock funds. Near-term results posted by selected sustainable indices. In this environment, only two of the six MSCI sustainable indices, chosen to represent a broad cross section of sustainable investing market segments, outperformed their conventional counterparts in October. These included the MSCI USA Selection Index and the MSCI EAFE Selection Index that outperformed their conventional counterparts by 97 basis points (bps) and 23 bps, respectively. Three-month and year-to-date results were mixed but over the trailing twelve months, only the MSCI Emerging Markets Selection Index managed to outperform its conventional counterpart by posting a gain of 35.10% versus 29.91%, or a 3.85% positive differential. A wider 12-month differential to the downside was experienced by the MSCI USA Small Cap Selection Index that trailed by 6.07%. Despite similar sector weights, energy likely contributed meaningfully to the MSCI USA Small Cap Selection Index’s underperformance, with the divergence driven primarily by stock selection rather than allocation. Intermediate-to-long-term results posted by sustainable indices. The MSCI USA Selection Index is the only one of the six benchmarks that shows consistent outperformance over the three-, five- and ten-year intervals to the end of October. Right behind it is the MSCI Emerging Markets Selection Index that has outperformed over the preceding three and ten years and with wider margins. With regard to fixed income, the Bloomberg MSCI US Aggregate ESG Focus Index has managed to very closely track the Bloomberg US Aggregate Bond Index over the short-to-intermediate term interval that it’s been calculated, oftentimes achieving the same results or, if they vary, the results deviate by no more than one to two basis points in either direction. Sources: Morningstar, MSCI, ISS STOXX, and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-October 1, 2025

Sustainable Bottom Line: Sustainable funds reached $374.1 billion in September, a month when no new funds were listed and four of six sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, closed the month of September with $374.1 billion in net assets across a combined total of 1,209 funds representing 1,001 mutual funds/share classes and 208 ETFs. This compares to last month’s 1,238 funds/share classes and a net drop of 29 funds/share classes, largely due to fund liquidations and in one instance, a fund merger. This represents an uptick from last month’s decline of seven funds/share classes, the smallest monthly decline in the number of mutual funds/share classes and ETFs so far this year. The reading of assets under management this month was higher for the sixth consecutive month and represents another new milestone relative to the $366.3 billion reached at the end of November 2024. The August increase of $6.5 billion, or a gain of 1.8%, is attributable to a combination of capital appreciation as well as cash outflows as sustainable long-term funds posted an average total return of 2.5%. Exchange traded funds contributed a net of $4.9 billion in assets in September, for a 3.9% increase, while the assets of mutual funds expanded by $1.6 billion, or 0.8%. Using a simple back of the envelope calculation, the gains achieved by sustainable long-term funds in September were entirely attributable to capital appreciation of about $9.3 billion. Offsetting this amount were negative flows in the amount of about $2.8 billion. From the start of the year, combined assets under management increased by almost $21 billion, or 6.0%. The increase was largely attributable to net gains by ETFs that added some $17.3 billion while the larger mutual funds segment added about $4 billion. New Sustainable Fund Launches Focused sustainable new fund listings remain dormant. There were no new sustainable fund listings recorded in September, the fifth month this year with zero listings. Year-to-date, seven new fund launches were documented (excluding new share classes), compared to eight new listings during the same period in 2024 and 64 in 2023. Of the seven new listings this year, four were ETFs and three were mutual funds (Note: Chart reflects an April mutual fund launch adjustment). The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings starting in mid-2023 to date. As noted previously, the number of focused sustainable funds/share classes dropped by a net of 29 funds/share classes, largely due to fund liquidations and in one instance, a fund merger. The liquidation of 14 funds/share classes involved firms that withdrew from offering focused sustainable fund products, including MassMutual, NexPoint Asset Management and Vontobel Asset Management. This further reduced the number of firms offering focused sustainable mutual funds and ETFs to 121 firms. In addition, BlackRock liquidated four funds/15 share classes while Calvert merged one fund. (Note: Net declines reflect data adjustments covering prior period activities.). Green, Social and Sustainability Bonds Issuance (to September 30, 2025) According to SIFMA, global sustainable bond issuance in the third quarter, including green bonds, social and sustainability bonds, hit $212.9 billion, a decline of $13.9 billion or 6.1% relative to the second quarter. Issuance was bolstered in September when global volume reached $96.3 billion, the highest monthly volume so far in 2025. September reflected a strong pick up relative to July and August issuances of $59.7 billion and $56.8 billion, respectively. Year-to-date, global issuance reached $678.7 billion, a decline of $44.1 billion, or 6.1%, versus the same period during the first nine months of 2024. In contrast to a decline in global issuance during the third quarter, US sustainable bond volumes recovered from the dip in the second quarter. US green, social and sustainability bond issuances reached $54.6 billion, up $16.5 billion, for an increase of 43.1% relative to the second quarter. This was during a quarter when total US bond market issuance, at $2.8 trillion, dropped by 0.3%. US sustainable bonds new issuances in the quarter were lifted by the second highest monthly issuance level in 2025 when $20.5 billion in new bonds came to market in September. In addition, year-to-date issuance exceeded the levels reached during the comparable period last year, $148.2 billion versus $126.5 billion, for an increase of $21.7 billion or 17.1%. Based on year-to-date volumes and assuming no change in issuance patterns over the final three months of the year, sustainable debt volume could reach about $900 billion in 2025 and exceed last year’s level of $866.2 billion. It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes and transition bonds. (Note: Prior period quarterly data reflect any latest adjustments). Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional Indices In September 2025, equity markets extended earlier gains, with the S&P 500 up 3.65% and technology/mega-cap names powering much of the advance. International markets also posted solid gains, particularly in emerging markets and China, which was up 9.75% and 41.62% year-to-date. On the fixed income side, bonds generally rallied modestly as yields retreated after the Federal Reserve moved to cut rates. Over the third quarter, U.S. equities rose 8.12%, international equities likewise posted strong returns, and bonds delivered positive albeit more modest returns. Year-to-date, foreign equities, especially emerging market equities, have outpaced U.S. stocks, while core bond returns have benefited from the easing in yields. Over the trailing 12 months as well, equities have generated healthy double‐digit returns and bonds have recovered some ground. Looking ahead, the durability of earnings growth, the Fed’s next moves, inflation dynamics, and global macro risks (e.g. China, Europe) will largely shape returns — caution is warranted amid elevated valuations and potential volatility. In addition, focused long-term sustainable funds added an average of 2.52% in September, with international funds delivering an average gain of 3.09%, U.S. equity funds added 2.25%, and taxable bond posting an average increase of 0.80%. Against this backdrop, four of six selected MSCI sustainable indices, chosen to represent a broad cross section of the sustainable investing market segments, outperformed their conventional counterparts in September, the first time this year that more than three of the selected indices outperformed the monthly results achieved by their conventional counterparts. The only index that lagged is the MSCI USA Small Cap Selection Index that posted a return of 1.26% in September while its underlying index, the MSCI USA Small Cap Index, delivered a return of 1.84%, or a negative differential of 58 basis points (bps). At the same time, the Bloomberg Barclays MSCI USA Aggregate ESG Focused Index was even with its underlying Bloomberg US Aggregate Bond Index at 1.09%. Interestingly, the reverse is true when relative results are examined over the year-to-date and trailing 12-month basis. In each case, four of the five sustainable stock indices underperformed while the MSCI Emerging Markets Selection indices outpaced their conventional counterparts by 4.4% and 5.44% since the start of the year and over the trailing 12-months. With very narrow margins, the Bloomberg Barclays MSCI USA Aggregate ESG Focused Index outperformed during the same intervals. Over the intermediate and long-term horizons, the performance results registered by sustainable equity indices generally lag conventional benchmarks. Two exceptions are the MSCI USA Selection Index that outperformed its conventional counterpart over the past three, five and ten years and the MSCI Emerging Markets Selection Index that is ahead of the MSCI Emerging Markets Index over the trailing three and 10-year intervals but lagging over the five-year period. Consistently, the Bloomberg Barclays MSCI USA Aggregate ESG Focused Index has been generating a return in line with or very narrowly outside its underlying benchmark. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic Q3 2025 Quarterly Report (some statistics are updated) and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-September 1, 2025

Sustainable Bottom Line: Focused sustainable funds reached $367.7 billion in assets, with one new fund introduced, while only one of six selected sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, closed the month of August with $367.7 billion in net assets across a combined total of 1,238 funds representing 1,030 mutual funds/share classes and 208 ETFs. This compares to last month’s 1,245 funds/share classes and a net drop of seven funds/share classes, largely consisting of ETF closures and rebrandings, a level that represents the smallest monthly decline in the number of mutual funds/share classes and ETFs so far this year. The reading of assets under management was higher for the fifth successive month and has now exceeded the $366.3 billion reached at the end of November 2024. The August increase of $4.7 billion, or a gain of 1.3%, is attributable to a combination of capital appreciation as well as cash outflows as sustainable long-term funds posted an average total return of 2.11%. Exchange traded funds contributed a net of $2.8 billion in assets in August while the assets of mutual funds expanded by $1.8 billion, or 0.8%. Using a simple back of the envelope calculation, the gains achieved by sustainable long-term funds in August were entirely attributable to capital appreciation ($7.7 billion). Offsetting this amount were negative flows in the amount of $3.0 billion. From the start of the year, combined assets under management increased by $14.4 billion, or 4.1%. The increase was largely attributable to net gains by ETFs that added some $12.4 billion while the larger mutual funds segment added about $2 billion. New Sustainable Fund Launches One new sustainable fund listing was recorded in August, the target date Putnam Sustainable Retirement 2070 Fund with its eight share classes. This brings the new listings year-to-date total to six funds (excluding new share classes), compared to seven new listings during the same period in 2024 and 63 in 2023. Of the six new listings this year, four are ETFs and two are mutual funds. The drop-off in new listings continues to reflect the dramatic slowdown in new focused sustainable fund offerings starting in mid-2023 to date. During the month of August, the number of focused sustainable funds/share classes dropped by a net of seven funds/share classes, the smallest number of net closures, reorganizations and/or rebrandings so far this year that have averaged 20 funds/share classes per month. August’s drop in the number of mutual funds and ETFs due to closures, rebrandings and reorganizations, including seven ETFs, involved the notable reorganization of the $56 million Tortoise Global Water ESG Fund that upon its merger with another Tortoise Capital Advisors managed fund removed the ESG screening criteria mandate. At the same time, Schwab rebranded the $24 million Schwab Ariel ESG ETF by eliminating the ESG reference in its name and dropping the fund's negative screening approach as well as consideration of ESG factors in investment decisions. Green, Social and Sustainability Bonds Issuance (to June 30, 2025) According to Q2 reports from the World Bank and market analysis from firms like Moody's and ICE, global green bond issuance has remained the dominant force in sustainable finance through August 2025, while social bond issuance has continued a multi-year decline. Total sustainable bond issuance is projected to remain at or near 2024's $1 trillion level, balancing growth in certain areas against macroeconomic headwinds and increased scrutiny. That said, final issuance data covering the first two months of the third quarter is not yet available and the summary below covers reporting through Q2 2025. According to SIFMA, global sustainable bond issuance, including green bonds, social and sustainability bonds, hit $218.2 billion, down from $234.2 billion in Q1, or a decline of 6.9%. YTD, issuance reached $452.4 billion versus $485.9 billion during the equivalent period in 2024, or a decline of 6.9%. In the US, sustainable bond issuance dropped to $37.0 billion from $55.0 billion in the first quarter of the year. This represents a sharp quarter-over-quarter decline of 32.7% and a Y/Y decline of 4.7%. At $92.0 billion in issuance during the first six months of the year, sustainable bond issuance in the US is up from $83 billion or 10.9%. US sustainable bond issuance in Q2, which accounts for around 1% of total long-term US bond issuance per SIFMA, experienced a much sharper percentage decline versus a drop of 2.9% total bond market issuance in Q2 and a Y/Y increase of 11.4%. Global green bond issuance reached $147.4 billion in Q2, versus $130.3 billion in Q1, or an increase of 13.1%. At the same time, both social and sustainability bond issuances recorded 18.3% and 39.4% declines, respectively. In the US, issuance of green bonds reached $12.5 billion in Q2 versus $15.6 billion in Q1, or a 19.5% decline. Social and sustainability bonds, at $4 billion and $20.5 billion, respectively, registered sharper drops of 37% and 38%. Assuming no change in issuance patterns over the next six months, sustainable debt volume could reach about $900 billion and exceed last year’s level of $866.2 billion (per Sustainable Research and Analysis). It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes and transition bonds. Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional Indices August marked the fourth consecutive month of stock market gains, fueled by an insatiable appetite for AI and growing expectations of lower interest rates ahead. At the same time, bonds experienced modest weakness while international markets offered better value and growth potential. Yet beneath the surface lie potent headwinds: rich valuations, fragile credit conditions, lingering policy uncertainties, AI exuberance, and geopolitical risks. While optimism is still in the air, investors would do well to balance conviction with caution, diversify thoughtfully, and remain vigilant against seasonal and structural vulnerabilities. US Stocks. The S&P 500 Index posted a gain of 2.0% in August, following three successive higher monthly increases of 2.2%, 5.19% and 6.3%, and above average year-to-date and trailing twelve-month gains of 10.8% and 15.9%, respectively. The Dow Jones Industrial Average added 3.4% while the NASDAQ Composite Index returned 1.7%. These gains extended their returns from the start of the year and trailing twelve months to 8.3% and 11.6% and 11.5% and 22%, respectively. While large-cap growth stocks lagged value stocks, the reverse was the case for mid-cap and small cap stocks. The Russell 2000 index added 7.1% in August, and microcap stocks gained 9.3%. US Bonds. In the fixed-income space, U.S. Treasury yields declined modestly, with the 10-year Treasury yield dropping 14 basis points from 4.37% to 4.23%. This pushed the Bloomberg U.S. Aggregate Bond Index slightly higher, to 1.20% for the month and to 4.99% year-to-date and 3.14% over the trailing 12-months. August’s Bloomberg U.S. Aggregate Bond Index eclipsed the 1% return achieved by Corporate A rated bonds that were up 1% but trailed the 1.25% return delivered by corporate high yield bonds (1.25%). International Stocks. Overseas equity markets delivered mixed but generally stronger gains. The MSCI ACWI ex USA Index gained 3.5% while the MSCI EAFE Index both added 4.3% and the MSCI Emerging Markets Index recorded an increase of 1.5%. Year-to-date results were 22.2%, 22.8% and 19.6%, respectively. Global investors increasingly shifted toward ex U.S. equities, drawn by more attractive valuations and growth prospects abroad. A weakening U.S. dollar could further bolster international returns for U.S.-based investors. Sustainable Funds. Focused sustainable mutual funds and ETFs, a total of 1,238 mutual funds/share classes and ETFs with long-term assets of $367.7 billion at the end of August posted an average gain of 2.11%. Funds delivered average total returns of 10.0% and 8.7% since the start of the year and over the trailing 12 months, respectively. As a group, the 208 ETFs added an average of 3.14% in August as compared to 1.9% for 1,030 mutual funds/share classes—the variation in favor of ETFs attributable to the wide (>5%) variations in exposure to sector equity as well as international funds that achieve higher average returns in August relative to mutual funds as well as a reduced exposure to taxable bond funds with their lower returns. Sustainable Indices. Only a single chosen sustainable index, the MSCI USA Small Cap Selection Index published by MSCI, outperformed its conventional counterpart in August while five sustainable stock and bond indices underperformed. This is a reversal from the relative results achieved over the previous four months, during which three indices per month outperformed. The indices are chosen to represent a broad cross section of sustainable investing market segments. Relative underperforming indices, in descending order, included the MSCI USA Selection Index, the MSCI EAFE Selection Index, the MSCI ACWI ex USA Selection Index, MSCI Emerging Markets Index and the Bloomberg MSCI US Aggregate ESG Focus Index that lagged by 51 basis points (bps), 44 bps, 38 bps, 18 bps and 1bp. Year-to-date and trailing twelve-month relative results are slightly better. Four rather than five indices underperformed, while the MSCI Emerging Market Selection Index posted a wide 5.16% difference relative to its underlying benchmark. Over the intermediate and long-term horizons, the performance results of sustainable indices generally lag conventional benchmarks. Two exceptions are the MSCI Emerging Markets Select Leaders Index and the MSCI USA ESG Leaders Index that outperformed their conventional counterpart over the past three and ten years but fell behind over the latest three-year time period. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic Q2 2025 Quarterly Report (some statistics are updated) and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-August 1, 2025

Sustainable Bottom Line: Sustainable funds ended July at $363 billion in assets, there were no fund launches, and three of six selected sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), based on Morningstar classifications, a combined total of 1,245 funds/share classes as well as ETFs (1,029 mutual funds/share classes and 216 ETFs) versus last month’s 1,275 funds/share classes, a drop of 30 funds/share classes, closed the month with $363.0 billion in net assets. This reading of assets under management has now reached the highest level so far this year but still falls short of the $366.3 billion reached at the end of November 2024. The July increase of $4.3 billion or a percentage gain of 1.2% is attributable to a combination of capital appreciation and inflows as sustainable long-term funds posted an average total return of 0.6%. July assets of mutual funds expanded by $1.9 billion, or 1%, while ETFs added $2.4 billion, for a 2% gain. Using a simple back of the envelope calculation, the gains achieved by focused sustainable long-term funds in July were almost evenly split between capital appreciation ($2.2 billion) and positive flows ($2.1 billion). From the start of the year, combined assets under management increased by $9.73 billion, or 3%. The increase was largely attributable to net gains by ETFs that added some $9.6 billion while the larger mutual funds segment was essentially flat on a year-to-date basis. New Sustainable Fund LaunchesNo new sustainable fund listings were recorded in July, keeping the year-to-date total at five (excluding new share classes and rebrandings). This compares to seven new listings during the same period in 2024 and 62 in 2023, reflecting the dramatic slowdown in new focused sustainable fund offerings starting in mid-2023 to date. Of the five new listings this year, four were ETFs and one was a mutual fund. At the same time, the number of focused sustainable funds/share classes dropped by 30 funds/share classes. Of these, the closure of 25 mutual funds/share classes was attributable to three firms. The largest number involved 11 Natixis target date funds that were liquidated on or about July 29, 2025. Next was Franklin/Putnam that liquidated its Putnam Sustainable Retirement 2025 Fund, consisting of eight share classes, and Victory Pioneer that liquidated its Victory Pioneer Global Growth Fund and Victory Pioneer Fund with three share classes each and a combined total of $6.7 million in net assets. The remaining funds/share classes included the liquidation of the only sustainable fund offering by Lazard Asset Management, the $9.3 million Lazard US Sustainable Equity Portfolio. With this liquidation by Lazard, the firm exits the universe of managers offering a sustainable registered investment product. Green, Social and Sustainability Bonds Issuance (to June 30, 2025) The International Capital Markets Association (ICMA) updated the Green Bond Principles (and also Social Bond Principles) in June 2025 by adding an Annex consisting of Frequently Asked Questions regarding the newly added green enabling projects category and also issued a new Example Checklist to provide support to users in demonstrating how their projects align with the Green Enabling Projects Guidance document. In June 2024 ICMA expanded the definition of eligible green projects to include a new green enabling projects category, projects that do not themselves produce a direct environmental benefit but are considered critical enablers of green outcomes elsewhere in the economy or value chain, updated the Green Bond Principles (and also Social Bond Principles). Complete data through July 2025 is not yet available and the summary below covers the previous month’s reporting. According to SIFMA, global sustainable bond issuance, including green bonds, social and sustainability bonds, hit $218.2 billion, down from $234.2 billion in Q1, or a decline of 6.9%. YTD, issuance reached $452.4 billion versus $485.9 billion during the equivalent period in 2024, or a decline of 6.9%. In the US, sustainable bond issuance dropped to $37.0 billion from $55.0 billion in the first quarter of the year. This represents a sharp quarter-over-quarter decline of 32.7% and a Y/Y decline of 4.7%. At $92.0 billion in issuance during the first six months of the year, sustainable bond issuance in the US is up from $83 billion or 10.9%. US sustainable bond issuance in Q2, which accounts for around 1% of total long-term US bond issuance per SIFMA, experienced a much sharper percentage decline versus a drop of 2.9% total bond market issuance in Q2 and a Y/Y increase of 11.4%. Global green bond issuance reached $147.4 billion in Q2, versus $130.3 billion in Q1, or an increase of 13.1%. At the same time, both social and sustainability bond issuances recorded 18.3% and 39.4% declines, respectively. In the US, issuance of green bonds reached $12.5 billion in Q2 versus $15.6 billion in Q1, or a 19.5% decline. Social and sustainability bonds, at $4 billion and $20.5 billion, respectively, registered sharper drops of 37% and 38%. Assuming no change in issuance patterns over the next six months, sustainable debt volume could reach about $900 billion and exceed last year’s level of $866.2 billion. It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes and transition bonds. Short-Term Relative Performance: Selected Sustainable Indices vs. Conventional IndicesU.S. equities posted another month of gains in July, with the S&P 500 up +2.2%, its third consecutive monthly rise. Except for the first trading day of July, the index was in positive territory throughout the month. The Nasdaq Composite outperformed with a +3.7% gain, while the Dow Jones Industrial Average inched up +0.2%. Notwithstanding lingering geopolitical risks and domestic governance anxieties, unresolved concerns regarding economic growth, inflation and interest rates, investor sentiment was lifted by robust Q2 corporate earnings, easing trade tensions after progress in U.S.–Japan and U.S.–Europe negotiations, and optimism around AI-driven technology growth. Sector leadership came from information technology (up over 5%), energy technology, homebuilders, and banks. Utilities and consumer staples lagged, as defensive sectors lost appeal amid risk-on sentiment.The Russell 2000 Index rose about 1.7%, trailing large-cap benchmarks. Growth stocks outpaced value, and momentum and quality factors were rewarded, reflecting continued market preference for earnings resilience and innovation-driven names.International markets delivered mixed returns. The MSCI ACWI ex USA, that includes developed as well as emerging markets, was down slightly (-0.29%) while the MSCI Emerging Markets Index advanced 1.95%. Developed EAFE markets fell 1.4%, pressured by a late-month rally in the U.S. dollar, which reduced foreign market returns for U.S. investors. Emerging markets benefited from improving commodity demand and capital inflows, particularly into Asia and Latin America.The Bloomberg U.S. Aggregate Bond Index fell 0.26% in July, trimming its year-to-date gain to 3.75%. Yields on the 10-year Treasury moved modestly higher, from roughly 4.24% to 4.37%, as resilient economic data tempered expectations for aggressive Federal Reserve rate cuts. Investment-grade corporate bonds also posted slight losses, while high-yield bonds held up better amid tight credit spreads and continued investor appetite for yield.Against this backdrop, once again three of six chosen sustainable stock and bond indices published by MSCI outperformed their conventional counterparts in July while two sustainable indices underperformed, and the single sustainable bond index was even with its underlying index. That said, the mix of outperforming indices changed from June to July. The indices are chosen to represent a broad cross section of sustainable investing market segments. Positive relative results in July were recorded by the MSCI USA Selection Index, the MSCI ACWI ex USA Selection Index, and the MSCI Emerging Markets Index that beat their underlying indices by 44 basis points (bps), 7 bps and 68 bps, respectively. At the same time, the MSCI US Small Cap Selection Index and the MSCI EAFE Selection Index underperformed, trailing their underlying counterparts by 114 bps and 42 bps, respectively. Lastly, the Bloomberg MSCI US Aggregate ESG Focus Index was even with its underlying Bloomberg US Aggregate Bond Index. With one exception, US and international stock indices posted negative relative results ranging from -1.4% to -6.4%. The one exception is the MSCI Emerging Markets Selection Index that outperformed its underlying counterpart by a wide 7.06%. The same index offers a generally compelling case over extended time intervals, ranging from the intermediate to long-term. The same can be said for the Bloomberg MSCI US Aggregate ESG Focus Index which has been closely tracking its underlying index since its inception and now covers a five-year interval. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic Q2 2025 Quarterly Report (some statistics are updated) and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-July 1, 2025

Sustainable Bottom Line: Focused L-T sustainable funds ended June with $358.7 billion, two sustainable ETFs were launched while three of six selected sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,275 funds/share classes as well as ETFs (1,059 mutual funds/share classes and 216 ETFs), based on Morningstar classifications, closed the month with $358.7 billion in net assets. This reading of assets under management falls just short of the high 2025 level of $360.9 billion reached at the end of January, but higher than the $353.3 billion at YE 2024, and compares to 1,285 funds/share classes and $346.03 billion in net assets as of the prior month-end, for a month-over-month increase of $12.7 billion, or 4.0%. The increase is largely attributable to capital appreciation in June as sustainable long-term funds gained an average of 3.53%. June assets of mutual funds expanded by $7.9 billion, for a 3% increase, while ETFs added $4.8 billion, or a 4% gain.Using a simple back of the envelope calculation, the gains achieved by focused sustainable funds in June were largely attributable to capital appreciation while net positive flows contributed an estimated $0.45 billion.From the start of the year, combined assets under management increased by $5.4 billion, for a net gain of 2%, largely attributable to an upturn by ETFs that gained $7.21 billion while mutual funds gave up $1.75 billion.New Sustainable Fund LaunchesTwo new sustainable fund launches were recorded in June, bringing to five the number of new fund listings from the start of the year (excluding new share classes and rebrandings). This compares to six new listings during the same period in 2024 and 59 in 2023, reflecting the dramatic slowdown in new focused sustainable fund offerings starting in mid-2023 to date.Of the five new listings this year, four were ETFs and one was a mutual fund. The two new ETF launches in June are both managed by Brown Advisory, an independent largely employee-owned firm, and the tenth largest provider of focused sustainable mutual funds and ETFs with $10.0 billion in assets under management at the end of June. The funds are sub advised by Vident Asset Management, a firm that provides portfolio trading, execution, and implementation services for Brown Advisory’s ETFs. The ETFs are actively managed, concentrated funds, that include the $489.2 million Brown Advisory Sustainable Growth ETF (BASG) as well as the $127.3 million Brown Advisory Sustainable Value ETF (BASV).Green, Social and Sustainability Bonds Issuance (to June 30, 2025) According to SIFMA, global sustainable bond issuance, including green bonds, social and sustainability bonds, hit $218.2 billion, down from $234.2 billion in Q1, or a decline of 6.9%. YTD, issuance reached $452.4 billion versus $485.9 billion during the equivalent period in 2024, or a decline of 6.9%.In the US, sustainable bond issuance dropped to $37.0 billion from $55.0 billion in the first quarter of the year. This represents a sharp quarter-over-quarter decline of 32.7% and a Y/Y decline of 4.7%. At $92.0 billion in issuance during the first six months of the year, sustainable bond issuance in the US is up from $83 billion or 10.9%. US sustainable bond issuance in Q2, which accounts for around 1% of total long-term US bond issuance per SIFMA, experienced a much sharper percentage decline versus a drop of 2.9% total bond market issuance in Q2 and a Y/Y increase of 11.4%.Global green bond issuance reached $147.4 billion in Q2, versus $130.3 billion in Q1, or an increase of 13.1%. At the same time, both social and sustainability bond issuances recorded 18.3% and 39.4% declines, respectively. In the US, issuance of green bonds reached $12.5 billion in Q2 versus $15.6 billion in Q1, or a 19.5% decline. Social and sustainability bonds, at $4 billion and $20.5 billion, respectively, registered sharper drops of 37% and 38%.Assuming no change in issuance patterns over the next six months, sustainable debt volume could reach about $900 billion and exceed last year’s level of $866.2 billion.It should be noted that SIFMA’s data does not include sustainability linked bonds, sustainability linked notes and transition bonds.Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesReflecting resilient equity markets, US stocks posted strong increases again in June as the S&P 500 index registered a record high of 6,205 at the end of the month and closed with a gain of 5.09%. The Dow Jones Industrial Average added 4.47% while the Nasdaq Composite, fueled by mega-cap tech stocks, delivered another strong monthly rise of 6.64% after adding 9.6% in May. Small cap stocks also performed well, adding 5.44%, as the Russell 2000 Index posted a second consecutive monthly total return exceeding 5%. Global equity markets were also broadly higher, with the MSCI ACWI ex USA Index increasing 3.4% and the MSCI Emerging Market Index, which benefited from strong gains in Korea and Taiwan, recording a gain of 6.01%. At the same time, the Bloomberg US Aggregate Bond Index and the broader Global Aggregate index added 1.54% and 1.9%, respectively.In the second quarter, US stocks and bonds recovered from April’s volatility triggered by the April 2 liberation day larger than expected tariff announcement that caused a sharp selloff across markets. In the end, investors’ worst fears failed to materialize. Renewed investor confidence and a strong earnings season helped drive second quarter results to new highs. The S&P 500 gained 10.94%, the Nasdaq Composite Index pulled ahead with a gain of 17.96% while the MSCI ACWI ex USA added 12.03%. Bonds rose by 1.21%Against this backdrop, three of six chosen sustainable international stock indices published by MSCI outperformed their conventional counterparts in June whereas the two U.S. sustainable indices underperformed, and the single sustainable bond index was even with its underlying index. The indices are chosen to represent a broad cross section of sustainable investing market segments.Positive relative results in June were recorded by the three international stock indices, the MSCI ACWI ex USA Selection Index, the MSCI EAFE Selection Index and the MSCI Emerging Markets that beat their underlying indices by 17 basis points (bps), 4 bps and 16 bps, respectively. At the same time, the two MSCI US Selection indices underperformed, trailing their underlying counterparts by 5 bps and 105 bps, respectively. Lastly, the Bloomberg MSCI US Aggregate ESG Focus Index was even with its underlying Bloomberg US Aggregate Bond Index.Over the trailing twelve months, the stock indices presented divergent results. Four stock indices trailed, but the one exception was the MSCI Emerging Markets Select Index that outperformed its underlying index by a wide 5.98% margin. The same index offers a generally compelling case over extended time intervals, ranging from the intermediate to long-term. The same can be said for the Bloomberg MSCI US Aggregate ESG Focus Index which has been closely tracking its underlying index since its inception and now covers a five-year interval.Sources: Morningstar, MSCI, SIFMA/Dealogic Q2 2025 Quarterly Report (some statistics are updated), and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-June 1, 2025

Sustainable Bottom Line: Focused sustainable funds ended May with $346 billion, gaining $14.3 billion, and eked out inflows, while three of six sustainable indices outperformed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,285 funds/share classes as well as ETFs (1,069 mutual funds/share classes and 216 ETFs), based on Morningstar classifications, closed the month with $346.03 billion in net assets. This compares to 1,298 funds/share classes and $331.7 billion in net assets as of the prior month-end, for a month-over-month increase of $14.3 billion, or 4.1%. This is the largest monthly increase in assets since the start of the year and brings funds to within $7.3 billion, or 2.2%, needed to reach the level of $353.3 billion recorded at year-end 2024. The month-over-month gain in assets is almost entirely attributable to capital appreciation. Long-term mutual fund assets ended the month of May with $231.4 billion in net assets, up $7.5 billion, or 3.3%, while ETFs closed the month with $114.7 billion in assets, adding $6.8 billion, or 5.9%. Using a simple back of an envelope calculation, focused sustainable funds experienced net inflows in May, estimated at about $37 million. New Sustainable Fund Launches One new focused sustainable mutual fund was launched during the month of May, bringing to three the total number of new listings during the first five months of the year, excluding new share classes or funds that were a product of reorganizations. These new offerings consist of two ETFs and one mutual fund. The slow pace of new fund offerings continues a drought affecting new sustainable fund listings that started after May of 2023, but also the number of focused sustainable fund offerings continues to decline, either due to fund closures or reorganizations, as well as investment adviser exits, which in May included two confirmed firms. These include Defiance ETFs, manager of the $13.9 million Defiance Next Gen H2 ETF, and the VegTech LLC, manager of the $5.8 million VegTech Food Innovation & Climate ETF that was deemed to be not viable economically at the fund’s current asset level. At the same time, Cromwell Investment Advisors renamed its four funds by dropping the term sustainable from its funds’ names but retaining their sustainable investing screening and exclusionary criteria—an approach that is not entirely unusual. As for the new fund addition, the Dimensional World ex US Sustainability Targeted Value Portfolio Institutional Class, was launched by Dimensional Fund Advisors with $91.7 million in assets. The fund takes into account certain sustainability considerations when making investment decisions while also excluding certain companies based on sustainability considerations. Green, Social and Sustainability Bonds Issuance According to Bloomberg, sustainable debt issuance through May 25 reached $309.1 billion versus $298.90 billion, or an increase of $10.2 billion, over the same period last year. Bloomberg further reports that “sustainable-debt issuance in the Americas has been buoyed by Ginnie Mae's new offerings this year. New debt volume returned to a record pace as the securitized-sector increase of 22% has offset a 46% drop in corporate-bond sales. Offerings from US issuers are far exceeding those in other countries. Corporate issuance will likely remain light as companies navigate the trade tensions and anti-ESG positions.” SIFMA’s sustainable debt data through the second quarter of 2025 (the source for the data displayed above) will not be available until early July, however, Bloomberg’s observation regarding US issuance is consistent with first quarter issuance in the US which, at $47.7 billion according to SIFMA, reflected gains relative to last year when issuance reached $44.1 million. Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices In line with last month’s results, three of six selected sustainable domestic and international stock indices and one bond index, or 50%, outperformed their conventional counterparts in May. This was against a backdrop in which stocks that make up the S&P 500 Index climbed back from their 15% drop since the start of the year to close the month of May with a gain of 6.1% and a year-to-date gain of 1.6%. This brought the index to within 3.8% of the record closing high achieved in mid-February. The Dow Jones Industrial Average was up 4% while the Nasdaq Composite added nearly 10%. The performance of foreign stocks as measured by the MSCI ACWI ex USA Index, which had been outperforming tariff-battered U.S., stocks, lagged the S&P 500 with its gain of 4.58%. On the back of a 24-basis point decline in the yield offered by 10-year Treasuries, U.S. intermediate investment-grade bonds, based on the Bloomberg US Aggregate Bond Index, dropped 0.72%. Positive relative results in May were again recorded by two stock indices, the MSCI USA Selection Index and the MSCI Emerging Markets Select Index as well as the Bloomberg MSCI US Aggregate ESG Focus Index. These three benchmarks outperformed their conventional counterparts by 1.69%, 0.47% and .01%, respectively. Expanding the short-term time interval under consideration over three additional time periods up to twelve months does not result in any relative performance improvements. Longer term relative results, over the trailing three and five years to May 30th, are not compelling. However, there is some improvement in relative performance over the trailing ten years when the MSCI USA ESG Selection Index, MSCI ACWI ex USA Selection Index and MSCI Emerging Markets Selection Index outperform their conventional counterparts by an annualized 3.16%, .02%, and 1.03%, respectively. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic Q1 2025 Quarterly Report (some statistics are updated), Bloomberg and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-May 1, 2025

Sustainable Bottom Line: Focused long-term sustainable funds ended April with $331.7 billion in assets, a $7.3 billion drop, and experienced outflows, while ESG indices stabilized. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,298 funds/share classes as well as ETFs (1,078 mutual funds/share classes and 220 ETFs), based on Morningstar classifications, closed the month of April with $331.7 billion in net assets. This compares to 1,334 funds/share classes and $339.0 billion in net assets as of the prior month-end, for a month-over-month drop of $7.3 billion, or a 2.2% decline. Since the start of the year, the net assets of long-term sustainable funds have declined by $21.5 billion, or 6%. Long-term mutual fund assets ended the month of April with $223.8 billion in net assets, down $6.9 billion, or 3%, while ETFs ended the month with $107.9 billion in net assets, giving up just $43 million, or a slim 0.4%. Using a simple back of an envelope calculation, focused sustainable funds experienced outflows in April, estimated at about $9.4 billion. New Sustainable Fund LaunchesThere were two new listings of focused sustainable ETFs brought to market by Praxis during the month of April, bringing to 3 the number of new listings during the first four months of the year. Excluded are any new share class listings or funds that were the product of reorganizations. This continues a drought affecting new sustainable fund listings that started after May of 2023 likely linked to political ESG pushback. At the same time, the number of focused sustainable fund offerings continues to decline as funds are closed or reorganized. During April the total number of funds/share classes declined to 1,298 funds/share classes at April month end, or a net drop of 36 funds/share classes. Three firms, including HSBC, Lord Abbett and Neos Investment Management, closed their small sustainable funds and existed the space. Also of note, BlackRock closed three funds/11 share classes and Goldman Sachs executed a reorganization of the $27.9 million Goldman Sachs U.S. Equity ESG Fund with its seven share classes. The fund, which has lagged in performance relative to the S&P 500 Index, failed to gain traction and was acquired by the Goldman Sachs Enhanced Core Equity Fund. The acquiring fund continues the practice of ESG integration as explicitly reflected in the fund’s prospectus, but it did not adopt the acquired fund’s exclusionary approach based on revenues derived from certain listed industries and product lines. Green, Social and Sustainability Bonds Issuance (to Q1 2025) During the first three months of the year, the supply of green bonds dropped relative to the volume registered in the first quarter of 2024. According to SIFMA, global green bond issuance in Q1 was $225.5 billion, versus $270.4 billion during Q1 of last year. At the same time, first quarter issuance in the US, at $47.7 billion, gained some momentum relative to last year when issuance reached $44.1 billion. Issuance in the US also exceeded the level achieved in Q4 2024. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesReflecting an improvement over the previous month when five indices underperformed, three of six selected sustainable indices, including one domestic and international stock indices along with one bond index, outperformed their conventional counterparts in April. Positive results in April were recorded by the MSCI USA Selection Index, the MSCI Emerging Markets Select Index and the Bloomberg MSCI US Aggregate ESG Focus Index that outperformed their conventional counterparts by 0.68%, 0.3% and 0.01%, respectively. Expanding the short-term time interval under consideration to twelve months reduces the number of outperformers to one index, the MSCI Emerging Markets Select Index that expanded its trailing twelve-month outperformance to 6.3% or an increase of 1 basis point relative to the previous month. The index continues to benefit from significant stock overweighting in three companies, Taiwan Semiconductor, Tencent Holdings and Alibaba, as well as some variations in country weightings. This was against a backdrop a cloud of anxiety and uncertainty hanging over American businesses and consumers from President Trump’s tariffs produced a three-day “Liberation Day” selloff in stocks that was followed by a remarkable recovery based on signals from the White House that the president was willing to lower tariffs on major trade partners and even make a deal with China, even as first quarter GDP contracted. While still negative, the S&P 500 managed to narrow its decline in April to –0.7% and -4.9% year-to-date. On the other hand, international markets posted strong positive results, up 3.6% in April and 9.03% year-to-date, per the MSCI ACWI ex USA Index. Intermediate investment grade bonds were also up 0.4%, according to the Bloomberg US Aggregate Bond Index. Since the start of the year, bonds are outperforming stocks with a year-to-date gain of 3.2%. Long-term performance results, over three, five and ten year intervals, have largely fallen behind their conventional counterpart indices. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic Q1 2025 Quarterly Report (some statistics are updated), and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-April 1, 2025

Sustainable Bottom Line: Focused long-term sustainable funds ended Q1 with $339 billion in assets, a $16.5 billion drop, and experienced outflows, while ESG indices trailed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,334 funds/share classes as well as ETFs, (1,112 mutual funds/share classes and 222 ETFs), based on Morningstar classifications, closed the month of March with $339.0 billion in net assets versus $355.6 billion as of the prior month-end. This represents a month-over-month decline of $16.5 billion in net assets, or a 5% drop during a month when long-term funds posted a total return decline 2.95%, the S&P 500 dropped 5.63% and the Bloomberg US Aggregate Bond Index eked out a narrow 0.04% gain. Attributable to capital depreciation and net outflows, mutual funds gave up $10.9 billion, for a month over month decrease of about 4.5% while ETFs dropped almost $6 billion in net assets, or 5%. Using a simple back of an envelope calculation, focused sustainable funds experienced outflows in March estimated at about $6 billion. New Sustainable Fund Launches There were no new listings of focused sustainable mutual funds or ETFs during the month of March, and none during Q1 2025. Excluded are any new share class listings. This continues a drought affecting new sustainable fund listings that started after May of 2023. At the same time, a total of 20 funds/share classes were closed or liquidated, including the Lord Abbett Climate Focused Bond Fund which liquidated in March. The $25.3 million fund with its nine share classes, or 45% of closures, apparently couldn’t gain much traction since its launch in April 2020. Green, Social and Sustainability Bonds Issuance (to Q1 2025) During the first three months of the year, the supply of green bonds dropped relative to the volume registered in the first quarter of 2024. According to SIFMA (whose data tends to understate global issuance of sustainable bonds), global green bond issuance in Q1 was $225.5 billion, versus $270.4 billion during Q1 of last year. At the same time, first quarter issuance in the US, at $47.7 billion, gained some momentum relative to last year when issuance reached $44.1 billion. Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices A selected set of six sustainable stock and bond indices mostly underperformed their conventional counterparts in March. This was against a backdrop of retreating equities (S&P 500 Index: -5.6%) and mixed fixed income returns (Bloomberg US Aggregate Bond Index: 0.04%) amid a flurry of headlines around the imposition of tariffs, weakening sentiment among households, consumers as well as small businesses, and mixed fixed income returns given a modest steepening in the Treasury yield curve. Five of the six selected sustainable indices track domestic and foreign equities that are screened with an emphasis on company level ESG scores and exclusions based on specific business activities and exposure to ESG controversies. These indices posted returns in March ranging from 0.63% to -6.62%, trailing their conventional counterparts within a range starting at 14 basis points to a high of 124 basis points. The sixth benchmark, tracking fixed income securities that are screened on a similar basis, was up 0.04% and matched the performance of its conventional counterpart. Year-to-date and trailing 12-month performance results delivered by sustainable indices were also generally lower than their conventional underlying indices, with only two sustainable indices managing to exceed the results achieved by their counterparts. Of note is the MSCI Emerging Markets Select Index that established a wide 6.2% lead over the trailing 12-months, benefiting from significant stock overweighting in three companies, Taiwan Semiconductor, Tencent Holdings and Alibaba, as well as some variations in country weightings. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic Q1 2025 Quarterly Report (some statistics are updated), and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-February 1, 2025

The Bottom Line: Focused long-term sustainable funds gained $6.7 billion in net assets but experienced outflows, no fund launches were recorded, while ESG indices trailed. Long-Term Net Assets: Focused Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,380 funds/share classes as well as ETFs, (1,153 mutual funds/share classes and 227 ETFs), based on Morningstar classifications, closed the month of January with $360 billion in net assets. This represents a gain of $6.7 billion in net assets, or 1.9%, during a month when long-term funds posted a total return gain of 2.42%. Mutual funds gained $3.14 billion for a month over month increase of 1.3% while ETFs added $3.55 billion, registering a net gain of 3.2%. Using a simple back of an envelope calculation, focused sustainable funds experienced outflows in January. Mutual funds gave up around $2.1 billion while ETFs experienced net inflows in the amount of $0.78 million. New Sustainable Fund Launches There were no new listings of focused sustainable mutual funds or ETFs during the month of January. This continues a drought affecting new sustainable fund listings that started after May of 2023. At the same time, two ETFs were delisted in January, including the $10.6 million Goldman Sachs Bloomberg Clean Energy Equity ETF (GCLN) and the $15.2 million Goldman Sachs FT Real Estate and Infrastructure Equity ETF (GREI). This follows a year during which there 40 fund delistings, the highest number in a five-year interval. Green, Social and Sustainability Bonds Issuance (to Q4 2024) According to SIFMA, global green, social and sustainable bond issuance in 2024 reached $826 billion, based on slightly adjusted issuance numbers. This represents an increase of $83.8 million, or 10.9%, relative to 2023. Issuance declined in Q4, dropping from $224 billion to $153.2 billion, for a Q/Q decline of 31.6%. In the US, volumes also dropped in Q4, but the decline was less dramatic. Q4 volume came in at $39.9 billion versus $42.3 billion in Q3, or a 5.9% drop. That said, the year ended in the US, according to SIFMA which relies on data from Dealogic, at $164.7 billion versus $126.6 billion in 2023, or an increase of 30.1%. It should be noted that this level of US issuance exceeds the levels attributable to the US by other data providers. It should also be noted that other data sources, for example Bloomberg as well as Environmental Finance, both reported that global sustainable bond sales exceeded $1 trillion in 2024 and scored the second highest level of issuance after 2021. One reason for the variance is the inclusion by these two organizations of sustainability-linked notes and transition bonds that add a combined total of $55.5 billion in issuance. But more importantly is the variance in the tally for green, social and sustainability bonds that amount to almost $989 billion, according to Environmental Finance, versus $826 billion and a variance of $162.9 billion according to SIFMA. Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices Short-term results: Based on a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, for a total of six benchmarks constructed by MSCI around ESG screening and exclusionary criteria, two indices outperformed their conventional counterparts in January, three indices underperformed while one index matched its conventional counterpart. Outperforming sustainable indices included the MSCI US Small Cap ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index that outperformed in January by 41 bps and 35 bps, respectively. For the trailing one-year interval only one ESG index outperformed, namely the MSCI Emerging Markets Leaders Index that pulled ahead by a wide 6.23%. In part, the index benefited from higher exposures to Taiwan and a lower exposure to South Korea as well as greater weightings, almost 2X the weightings, in stocks like Taiwan Semiconductor and Tencent Holdings. Intermediate-to-long-term results: Over the intermediate and long-term, the relative performance results posted by the same ESG indices through the end of January are disappointing. The MSCI Emerging Markets ESG Leaders Index is the only benchmark to outperform over the ten- and five-year intervals to January 2025 with average annual beats of 73 bps and 14 bps, respectively. That said, the index trails over the training 3-year period. The other four equity benchmarks underperformed over the 3, 5 and 10-year intervals. While it has not yet established a 10-year track record, the Bloomberg MSCI US Aggregate ESG Focused Index tracked its underlying benchmark very closely over the three- and five-year intervals. It should be said, however, that the ten 10-year track record attributed to ESG indices is subject to interpretation in the light of significant operational and definitional changes over that time interval. 3-year and 5-year proxies may be better indicators. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic, and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-January 1, 2025

The Bottom Line: Focused sustainable funds ended 2024 with $353.3 billion in assets, still off their high, due, in part, to outflows and listings drought. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), a combined total of 1,383 funds/share classes as well as ETFs, (1,152 mutual funds/share classes and 231 ETFs), based on Morningstar classifications, closed the month of December and year-end 2024 with $353.3 billion in net assets. In December, the assets of focused long-term sustainable funds declined by $13.07 billion, from $366.3 billion at the end of November, for a drop of 3.6%. For the year, long-term funds benefited from the strong stock market performance (more than 77% of sustainable fund assets are invested in equity funds) and added $21.6 billion in net assets, an increase of 7%. The year-end level of $353.3 billion, however, is still short of the high level reached at the end of 2021, prior to the severe 2022 decline in the capital markets when long-term focused sustainable fund assets stood at $373.4 billion. At the same time, the net assets gain lags the 8.6% average return (13.4% on an average asset weighted basis) posted by focused sustainable long-term funds in 2024, thus pointing to net outflows that, based on a simple calculation and using average returns, are estimated to have reached $6.9 billion in 2024. The net assets of long-term mutual funds ended 2024 with $241 billion, having gained $11.2 billion or 5% for the year. That said, mutual funds experienced net outflows estimated at $6.9 billion. On other hand, the net assets of focused sustainable ETFs recorded an increase of $10.4 billion, or 10%, while also contributing positively to flows with an estimated $3.7 billion in inflows.Stock funds, both domestic and international, continue to dominate the focused sustainable funds space, with $290.1 billion in net assets, up 7% year-over year. At the same time, fixed income funds ended the year with $49.5 billion in net assets and a gain of $2.8 billion, or 6%. Both asset classes experienced a decline in the number of funds offered, due to fund closures and other forms of reorganization. New Sustainable Fund LaunchesThe drought affecting new listings of focused sustainable funds, which started after May of 2023, continued into December 2024. There were no new mutual fund listings in December and only one new sustainable ETF was launched during the last month of the year. The new fund listed in December is the passively managed $2.3 billion Invesco MSCI North American Climate ETF (KLMN). At $2.3 billion, it is also the largest ETF listing in 2024. During the calendar year 2024, new listings were limited to a combined total of nine mutual funds and ETFs. Seven of these include new ETF listings (excluding funds that switched from one listing exchange to another), both active and passively managed investment vehicles, as well as two new mutual fund listings (excluding new share classes). This compares to 68 new fund listings in 2023, including 32 ETFs and 36 mutual funds. The scarcity in sustainable fund launches, starting after May of 2023, may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile, including curtailing focused fund offerings, while at the same time continuing to support sustainable investing practices. Sustainability remains important to institutional investors who led in the recovery of assets since 2022, and it also remains important to corporate executives as well as asset owners. Retail investors, on the other hand, are still struggling to recover fully from the declines suffered in 2022 due to withdrawals and capital depreciation but their flows exhibited improving interest in sustainable investing last year. One of the latest surveys on this topic was recently published by The Capital Group. The Capital Group ESG Global Study was commissioned for a fourth year to gather the views of 1,130 global investors on ESG investing via an online survey conducted by CoreData Research during May and June 2024. “This year’s study shows global ESG adoption remains at an all-time high. Nine in 10 (90%) investors in the study identify as ESG users — the same as last year. This illustrates ongoing strong conviction in ESG as it enters a more mature phase of growth following its rapid evolution from niche to mainstream. EMEA is the leader, with 94% of respondents adopting ESG — up one percentage point from last year. ESG adoption rates in Asia-Pacific (93%) and North America (75%) are unchanged from last year.” Green, Social and Sustainability Bonds Issuance (to Q3 2024) YE 2024: Based on early reporting by Bloomberg, global sustainable bonds issuance in 2024 likely reached $1.0 trillion, with 4,490 offerings that exceeded the previous high of 3,729 issues registered the previous year. If confirmed, 2024 will be the second year only during which sustainable bond issuance exceeded $1 trillion. Only during 2021 did sustainable bond issuance reach a high level of $1.1 trillion. Last year’s issuance of green, social, sustainability and sustainability-linked bonds was 10% above 2023 levels, with record sales recorded by both green and sustainability bonds. The only category of sustainable bonds to post a decline last year was sustainability-linked bonds that dropped for the third year in a row and posted a year-over-year decline of 38.3%. These controversial bonds have fallen from favor as investors have been questioning their authenticity and actual impact. SIFMA Q3 2024: SIFMA issuance data through the end of 2024 is not yet available, but last month SIFMA released third quarter data showing that global green, social and sustainable bond issuance in the third quarter of 2024 reached $210.4 billion. Based on slightly adjusted issuance numbers for the second quarter, this represents a quarter-over-quarter decline of $3.4 billion, or a 1.6% drop. Green bonds accounted for 57.9% of global issuance while sustainability bonds and social bonds represented 25.4% and 16.7%, respectively, of total issuance. Global issuance year-to-date reached $693.5 billion, running ahead of the comparable period last year when volume reached $617.4 billion or over the comparable period in 2023. This represents a $76.1 billion pick up in sustainable bond issuance, or an increase of 12.3%. Against a backdrop of another strong quarter when fixed income issuance in the US reached $2.9 trillion, or a quarter over quarter increase of 16.1%, US sustainable bond issuance in the third quarter came in at $38.3 billion, recording a modest $0.7 billion increase, or 1.9%. Year-to-date, US sustainable bond issuance reached $119.5 billion, for a year-over-year increase of $24.3 billion or 24.3%. It should be noted that SIFMA data tends to understate global sustainable bond issuance as it captures a narrower slice of the market that also includes sustainability linked bonds and notes, for example. More generally, sustainable bond data provided by different data sources can vary by significant margins. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesWhereas the month of December ended on a down note with the S&P 500 giving up 2.4%, large-cap US stocks delivered their fourth best annual gain over the last decade. Adding 25.02% in 2024 after an increase of 24.23% in 2023, stocks recorded a two-year total return of 53.19%. This was against a backdrop of better than average expected earnings growth for 2024 and growth of earnings for the fourth straight year, juxtaposed against geopolitical uncertainty, doubts about the economy’s strength and lingering concerns about inflation as well as interest rates, particularly considering reservations associated with trade, taxes and immigration policies advocated by the incoming Trump administration. In fact, some of these considerations have stimulated generally bearish investment outlooks for 2025. The US led global equity returns while developed as well as developing markets, excluding the US, recorded a twelve-month return of 6.15%. US bond returns were more subdued in 2024, with intermediate investment grade bonds gaining just 1.25%. Focused sustainable long-term funds registered an average total return decline of -3.25% in December and an average increase of 8.60% or 13.6% on an asset-weighted basis for the full year 2024.For further details, refer to Sustainable investment funds performance wrap-up: December 2024.Against this backdrop, a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, for a total of six benchmarks constructed by MSCI around ESG screening and exclusionary criteria, failed to outperform their conventional counterparts in December. The five US and international equity-oriented ESG Leaders indices, including the MSCI USA ESG Leaders Index, the MSCI USA Small Cap ESG Leaders Index, the MSCI ACWI ex USA ESG Leaders Index, the MSCI EAFTE ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index, trailed by between 8 basis points (bps) and 96 basis points in December. At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index came in even with its Bloomberg US Aggregate Bond Index counterpart. Results for the entire year 2024 were not as lopsided but still leaning to underperformance. Two international indices outperformed, with the MSCI Emerging Markets ESG Leaders Index gaining 20.75% versus 14.68% for its conventional counterpart, for a 6.07% spread, the second widest spread in the last ten years. The performance of emerging markets also boosted the performance of the MSCI ACWI ex USA ESG Leaders Index. At the same time, the other four indices underperformed in 2024 relative to their conventional counterparts by a relatively small .02% for the Bloomberg MSCI US Aggregate ESG Focus Index to a wider deficit of 2.56% registered by the MSCI USA Small Cap ESG Leaders Index. Over the intermediate and long-term, relative performance results through the end of the year remain uneven. Equity and fixed income ESG indices lagged their conventional benchmarks over the three-year period. At the same time, relative performance results improve over the five and ten years to year-end 2024. Three indices outperformed over the previous five years and three of five indices, all international benchmarks, including EAFE, ACWI ex USA and Emerging Markets, outperformed their conventional counterparts over the extended ten-year time interval. It should be said, however, that the ten 10-year track record attributed to ESG indices is subject to interpretation in the light of significant operational and definitional changes over that time interval. 3-year and 5-year proxies may be better indicators.Sources: Morningstar Direct, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-December 1, 2024

The Bottom Line: Focused sustainable fund assets recorded their best monthly gain to-date, fund launches remained moribund and the relative performance of ESG indices improved. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,392 funds/share classes in total (1,159 mutual funds/share classes and 233 ETFs), based on Morningstar classifications, closed the month of November with $366.3 billion in net assets. This represents a net increase of $13.1 billion, attributable to capital appreciation as well as net inflows, for a gain of 3.7%. At $13.1 billion, this is also the best gain so far this year as it surpassed the $11.3 billion increase recorded in February 2024. The net assets of both sustainable mutual funds as well as ETFs experienced increases, reaching $250.5 billion and $115.8 billion, respectively. Based on a simple calculation that reflects the average November total returns registered by long-term funds, combining mutual funds and ETFs, of almost 3.0%, an average return of 2.92% posted by long-term mutual funds and 3.16% by ETFs, it is estimated that sustainable funds in the aggregate experienced cash inflows during November in the amount of $730.1 million. Mutual funds added about $7.4 billion in November, including $300 million in net cash inflows. ETFs added about $5.7 billion, including positive flows in the amount of $2.2 billion.Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $34.6 billion in assets, for an increase of 10.0%. Mutual funds accounted for about 60% of the net gain. New Sustainable Fund LaunchesThe drought affecting new listings of focused sustainable funds, which started after May of last year, continued into November 2024. There were no new mutual fund listings in November, however, one new sustainable ETF was launched in the latest month. The new ETF launch was offset by two ETFs that were delisted as well as three mutual fund closings in November. In the latest full month, focused sustainable long-term funds added $13.1 billion in net assets to reach $366.3 billion, for a 3.7% gain, attributable to capital appreciation and positive cash flows. This was the segment’s best overall monthly gain so far this year, exceeding the next best uptick that was observed in March when combined long-term assets reached 342.9 billion. Long-term funds gained an average of almost 3.0% in November and 18.0% over the trailing twelve months. The newest ETF is a $17.3 million index fund managed by Empowered Funds dba ETF Architect dba EA Advisors (owned by Alpha Architect, LLC), a Pennsylvania-based manager with $8.5 billion in assets under management, and sub-advised by Stance Capital. The Stance Sustainable Beta ETF (STSB) seeks to replicate the performance of the Change Finance Diversified Impact U.S. Large Cap Fossil Fuel Free Index. The index is constructed around 100 large-, mid-capitalization equity securities of U.S.-listed companies, selected from a universe of 1,000 firms that excludes companies involved in the fossil fuel industry, fossil-fired utilities and companies which fail to meet a diverse set of environmental, social, and governance criteria established by Change Finance using, but not relying exclusively, on ESG data provided by ISS ESG data. In addition, the sub-adviser may engage in shareholder activism with respect to the fund’s holdings by sending letters, engaging in dialog with company management and possibly submitting shareholder proposals on a variety of ESG-related issues, including those related to the ESG factors.Since the start of the year, there have been only nine new mutual fund ETFs listings, versus a combined total of 66 over the same time interval (based on slightly revised data). Green, Social and Sustainability Bonds Issuance (to Q3 2024) While consistent and reliable Q4 and annual 2024 issuance data will not be available for several weeks following year-end, two benchmarks in the form of forecasts are worth keeping in mind as the data rolls in. The first is S&P Global’s projection, made early in the year, that annual issuance of green, social, sustainability, and sustainability-linked bonds could reach $1.05 trillion in 2024 and account for 14% of global issuance. The second is a slightly more modest $950 billion forecast offered by Moody’s Investors. Even at the high end of the range, issuance would still fall below the high level of almost $1.1 trillion recorded in 2021. SIFMA Q3 2024: Issuance data through the end of October is not yet available, but last month SIFMA released third quarter data showing that global green, social and sustainable bond issuance in the third quarter of 2024 reached $210.4 billion. Based on slightly adjusted issuance numbers for the second quarter, this represents a quarter-over-quarter decline of $3.4 billion, or a 1.6% drop. Green bonds accounted for 57.9% of global issuance while sustainability bonds and social bonds represented 25.4% and 16.7%, respectively, of total issuance. Global issuance year-to-date reached $693.5 billion, running ahead of the comparable period last year when volume reached $617.4 billion or over the comparable period in 2023. This represents a $76.1 billion pick up in sustainable bond issuance, or an increase of 12.3%. Against a backdrop of another strong quarter when fixed income issuance in the US reached $2.9 trillion, or a quarter over quarter increase of 16.1%, US sustainable bond issuance in the third quarter came in at $38.3 billion, recording a modest $0.7 billion increase, or 1.9%. Year-to-date, US sustainable bond issuance reached $119.5 billion, for a year-over-year increase of $24.3 billion or 24.3%. It should be noted that SIFMA data tends to understate global sustainable bond issuance as it captures a narrower slice of the market that also includes sustainability linked bonds and notes, for example. More generally, sustainable bond data provided by different data sources can vary by significant margins. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesNovember’s U.S. presidential election, which had been too-close to-call, resulted in a clear victory for Donald Trump and Republican majorities in both the Senate and the House of Representatives. The election outcomes ignited a broad-based post-election stock market rally that produced the best monthly return so far this year for stocks.The S&P 500 added 5.9% on a total return basis. Market sentiment remains very positive, but the index is now trading at a stretched PE of 25.79 X estimated 2024 earnings. The Dow Jones Industrial Average (DJIA), which posted seven new closing highs in November, also ended the month with a closing high of 44,910.65. The DJIA gained 7.7% while the Nasdaq 100 posted an increase of 5.3%. Small and mid-cap growth indices were some of the best performers in November, with the Russell Mid Cap Growth Index and Russell 2000 Index posting very strong gains of 13.3% and 12.3%, respectively. The Russell 2000 registered its best monthly gain since December 2023, adding almost 11% and recording a gain of 21.6% over the trailing 12-months versus an increase of 29.1% for the S&P 500.International equity indices moved in the opposite direction. The MSCI ACWI ex USA gave up 0.91% in November but maintained a positive result since the start of the year with a gain of 8.34%. This reflected the drag of emerging markets that posted a decline of 3.59% according to the MSCI Emerging Markets Index—driven by declines recorded in Brazil (-7.1%), Korea (-5.7%) and China (-4.4%) At the same time, against a backdrop of flagging growth in Europe, the developed markets MSCI EAFE Index managed to limit its decline to 0.57% and a year-to-date drop of 6.24% even as France dropped 4.2%.Inflation remains above the Federal Reserve’s 2% target, and recent data shows that it is still a thorn. Nevertheless, the Federal Reserve, based on CME probability figures, is expected to cut interest rates by 25 basis points at the scheduled December 17-18 meeting, despite a slight increase in inflation in November. Long-term interest rates in November stabilized and shifted from a high yield of 4.44% attributable to 10-year Treasuries to 4.18% at month-end. At the same time, the Bloomberg US Aggregate Bond Index gained 1.06% and 2.93% since the start of the year. Long-term credit instruments, such as the Bloomberg US Long Credit Total Return Index gained 2.21% and 2.28% year-to-date.Long-term focused sustainable funds (excluding money market funds recorded an average gain of almost 3.0% and, for the trailing 12-months, grew by an average of 18%.A selection of five US and international equity ESG Leaders indices and one fixed income benchmark, for a total of six benchmarks constructed by MSCI around ESG screening and exclusionary criteria, improved their relative monthly performance results in November versus October. All three international equity-oriented ESG Leaders indices outperformed their conventional counterparts in November, recording excess returns ranging from 13 basis points (bps) recorded by the MSCI EAFE ESG Leaders Index to 34 bps achieved by the MSCI ACWI ex USA ESG Leaders Index as well as the MSCI Emerging Markets ESG Leaders Index. At the same time, the two US-oriented benchmarks, the MSCI USA ESG Leaders Index and the MSCI USA Small Cap ESG Leaders Index underperformed by 67 bps and 79 bps respectively while the fixed income-oriented index, the Bloomberg MSCI US Aggregate ESG Focus Index, lagged by a very narrow 1 bps.Beyond the one-month results and continuing to 12-months, relative performance results over the 3-, 11- and 12-month intervals registered by the ESG-oriented benchmarks lagged, with the exception of the MSCI Emerging Markets Leaders Index that outperformed during each of the three intervals.Over the intermediate and long-term time frames, relative performance results through November remain lackluster. Equity and fixed income ESG indices lagged their conventional benchmarks over the three-year period. Over the previous five years, only two indices outperformed. At the same time, three of the five (the track record of fixed income securities doesn’t extend to 10 years) ESG indices outperformed their conventional benchmarks. These include the three international yardsticks. That said, the ten 10-year track record attributed to ESG indices is questionable in the light of significant operational and definitional changes over that time interval. 3-year and 5-year proxies may be better indicators. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-October 1, 2024

The Bottom Line: Sustainable fund assets expanded due to capital appreciation, fund launches remain moribund, sustainable bond volume dips and ESG indices reflected mixed results. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,412 funds/share classes in total (1,175 mutual funds/share classes and 237 ETFs), based on Morningstar classifications, closed the month of September with $361.3 billion in net assets. This represents a net gain in assets of $5.4 billion, or an increase of 1.5%. The monthly net gain was the lowest in the third quarter, trailing the $6.5 billion uptick in August and $6.6 billion in July. Still, net assets in September reached the highest month-end assets level achieved so far this year and above any month-end levels recorded in 2022. The net assets of both sustainable mutual funds as well as ETFs also reached new month-end high levels in September, attributable entirely to capital appreciation of about $5.4 billion. Based on a simple calculation that reflects the average September total return gains recorded by long-term mutual funds at 1.8% and 3.05% by ETFs, it is estimated that sustainable funds experienced cash outflows during September in the amount of about $2.3 billion. Mutual funds experienced cash outflows estimated at $1.7 billion while ETFs registered outflows estimated at around $600 million. Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $29.6 billion in net assets, for an increase of almost 1%. Mutual funds accounted for about 70% of the gain. New Sustainable Fund Launches The drought affecting new listings of focused sustainable funds, which started after May of last year, continued into September 2024. There were no new mutual fund or ETF listings during the month, while during the third quarter, only one new ETF was launched versus five new funds during the same period last year and a total of only seven funds (adjusted), all ETFs, launched since the start of the year versus 64 during the same period last year. The only fund launched in the third quarter is the $300 million KraneShares Sustainable Ultra Short Duration Index ETF (KCSH) that, in addition to its fundamental investment strategy, invests in securities that are compatible with the principal objective of the Paris Climate Agreement, which seeks to limit temperature increases in this century to well below 2 degrees Celsius, preferably to 1.5 degrees Celsius, above pre-industrial levels (i.e., carbon reduction target levels) while also employing exclusionary screens based on certain business practices. During the month, there were two fund liquidations (excluding fund share classes). These included the $3.9 million Blue Horizon BNE ETF and the $16.3 million AMG GW&K Enhanced Core Bond ESG Fund with its three share classes. The scarcity in sustainable fund launches, starting after May of last year, may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings while at the same time continuing to support sustainable investing practices. Sustainability also remains important to corporate executives as well as asset owners. According to a just released Voice of the Asset Owner Survey 2024 report by published by Morningstar based on survey findings, 67% of asset owners globally say that “ESG has become more material in the last five years.” Green, Social and Sustainability Bonds Issuance (to Q3 2024) In the just released third quarter data according to SIFMA, global green, social and sustainable bond issuance in the third quarter of 2024 reached $210.4 billion. Based on slightly adjusted issuance numbers for the second quarter, this represents a quarter-over-quarter decline of $3.4 billion, or a 1.6% drop. Green bonds accounted for 57.9% of global issuance while sustainability bonds and social bonds represented 25.4% and 16.7%, respectively, of total issuance. Global issuance year-to-date reached $693.5 billion, running ahead of the comparable period last year when volume reached $617.4 billion or over the comparable period in 2023. This represents a $76.1 billion pick up in sustainable bond issuance, or an increase of 12.3%. Against a backdrop of another strong quarter when fixed income issuance in the US reached $2.9 trillion, or a quarter over quarter increase of 16.1%, US sustainable bond issuance in the third quarter came in at $38.3 billion, recording a modest $0.7 billion increase, or 1.9%. Year-to-date, US sustainable bond issuance reached $119.5 billion, for a year-over-year increase of $24.3 billion or 24.3%. It should be noted that SIFMA data tends to understate global sustainable bond issuance as it captures a narrower slice of the market that also includes sustainability linked bonds and notes, for example. More generally, sustainable bond data provided by different data sources can vary by significant margins. Last year, for example, UNCAD reported that global green bond issuance reached $872.2 billion while Bloomberg reported an even higher $939 billion versus $746.8 million compiled by SIFMA. More recently, according to BBVA, green, social, sustainable and SLB bond issuance through September 20, 2024, reached $698.7 billion. Of this sum, $431.0 million, or 62%, is sourced to green bonds, $108.7 billion was raised through social bonds, $133.4 billion is linked to sustainability bonds and $25.6 billion is attributable to sustainability-linked bonds. Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices After a volatile start to September that saw the S&P 500 give up 4.2% during the first four trading days of the month, large cap stocks staged a recovery to close the month at a record level. For the month, the S&P 500 set five new closing highs and 43 closing highs year-to-date. Fueled by a sense of optimism that inflation was under control, the Federal Reserve’s 50 basis point (bps) interest rate cut will boost U.S. growth and avoid a recession, further powered at the end of the month by the announcement of a major injection of economic stimulus in China and positive expectations for corporate earnings in the third and fourth quarters, the S&P 500, which saw a broadening of stocks participating in the rally, closed the month and quarter with gains of 2.14% and 5.89%, respectively. Year-to-date, the benchmark is up by 22.08%. Other major indicators were up too. The Dow Jones Industrial Average gained 1.85%, adding 12.31% for the year and 26.3% across the trailing twelve months. At the same time, the Nasdaq 100, propelled by the performance of the Magnificent 7 that as a group, reversed the previous month’s decline, posted a gain of 2.6% in September, 20% year-to-date and a whopping 37.5% since October 1, 2023. China’s economic stimulus announcement drove Chinese stocks higher, delivering the best returns in September, up 23.9% according to the MSCI China Index and up 29.3% year-to-date. This development also impacted other world indices, elevating the MSCI ACWI, ex USA, up 2.7% and the MSCI Emerging Markets Index up 6.7%. MSCI EAFE was more subdued, generating a gain of 0.9%. Bonds, as measured by the Bloomberg US Aggregate Bond Index, registered their fifth consecutive gain in September, adding 1.3% and further lifting their 12-month and year-to-date gains to 11.6% and 4.5%, respectively and putting them on track to beat last year’s 5.5% gain. High yield bonds did even better, adding 1.6% for the month and almost twice as well with an increase of 8% year-to-date. While ten year and two-year Treasury yields dropped by 10 bps and 2 bps, respectively during the month, yields shifted higher by 5 bps and 11 bps during the 8 trading days following in the Feds larger than expected 50 bps US Fed rate cut which took the Fed funds rate to a 4.75-5% range. For the first time this year, the inverted yield curve turned positive in early September ahead of the Fed’s rate action. Against this backdrop, sustainable securities market benchmarks, measured by a selected number of five MSCI ESG Leaders indices covering equities and one Bloomberg MSCI US Aggregate ESG Focus Index, reflected mixed results in September and year-to-date. Three indices, the MSCI USA ESG Leaders Index, the MSCI ACWI ex USA ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index outperformed their conventional benchmarks by 21 bps, 38 bps and 159 bps, respectively, with the international indices benefiting from a greater China weighting which was most pronounced for the narrower emerging markets index. At the same time, lower energy prices in September were likely a contributing performance factor. Mixed results were also achieved on a year-to-date basis while over the trailing twelve months, relative results improved as four of the six ESG indices outperformed by a range as high as 3.6% recorded by the MSCI Emerging Markets ESG Leaders Index. While mixed relative returns also show up in the three-year results, improved long-term relative outcomes are evident over the trailing five- and ten-year intervals, in particular due to the outperformance of international ESG Leaders indices. Sources: Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-September 1, 2024

The Bottom Line: Sustainable fund assets expanded with the benefit of capital appreciation, fund launches remained anemic while the relative performance of ESG indices rebounded. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,433 funds/share classes in total, based on Morningstar classifications, closed the month of August with $355.9 billion in net assets. This represents a net increase in the amount of $6.5 billion, or a gain of 1.9%, versus a slightly higher $6.6 billion in the previous month. This is now the highest month-end assets level achieved so far this year and above any month-end levels achieved in 2022. The net assets of both sustainable mutual funds as well as ETFs also reached new month-end high levels in August, attributable largely to capital appreciation. Based on a simple calculation that reflects the average August total return gains recorded by long-term mutual funds at 1.9% and 1.5% by ETFs, it is estimated that sustainable funds experienced cash outflows during August in the amount of about $0.2 billion to $0.3 billion, largely attributable to capital appreciation and modest inflows into ETFs that were offset by slight mutual fund outflows. Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $24.2 billion in net assets, for an increase of 7.3%. Mutual funds accounted for about 70% of the gain. New Sustainable Fund LaunchesThere were no new mutual fund or ETF launches in August, reflecting a continuing drought in sustainable fund launches. During the eight-month interval to the end of August, a total of six fund launches were recorded, all ETFs (this reflects an revised to reflect the launch of a new ETF in July). This record stands in sharp contrast to the 63 funds that were launched during the comparable period in 2023. Liquidations affected six mutual funds and two ETFs. Four BlackRock managed mutual fund liquidations were reported, with assets totaling about $104 million, largely attributable to institutional investors, perhaps in the form of seed commitments. At the same time, two ETFs were liquidated, including the $25.5 million BlackRock Future Climate and Sustainability Eco ETF and the $3.2 million Veridian Climate Action ETF. It seems that the fund “could not conduct its business and operations in an economically efficient manner over the long term due to the Fund’s inability to attract sufficient investment assets to maintain a competitive operating structure.” That said, the Chief Investment Officer and portfolio manager of the fund’s sub-adviser’s resigned without further explanation. The scarcity in sustainable fund launches, starting after May of last year, may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings. While this may be the case, a just released Bain & Company research report entitled The Visionary CEO’s Guide to Sustainability 2024 indicates that sustainability remains important to corporate executives even as the importance of sustainability has declined. At the same time, roughly 60% of 19,000 consumers surveyed say their concerns about climate change have increased in the past two years.Green, Social and Sustainability Bonds Issuance (to Q2 2024) The latest available data according to SIFMA show that global green, social and sustainable bond issuance in the second quarter of 2024 reached $207.1 billion. This represents a quarter-over-quarter decline of $62.4 billion, or a decline of 23.2%. Green bonds accounted for 68.3% of global issuance while sustainability bonds and social bonds represented 19.7% and 12.0% of total issuance. Global issuance year-to-date reached $476.6 billion versus $468.9 billion over the comparable period in 2023. This represents a slight $7.7 billion pick up in sustainable bond issuance, or an increase of 2%. US sustainable bond issuance in the second quarter registered $37.0 billion, down $6.5 billion from $43.5 billion issued in the first quarter 2024, or a 2% decline. That said, June saw a slight pickup in issuance, increasing from $11.9 billion to $13.2 billion. It should be noted that SIFMA data tends to understate global sustainable bond issuance as it captures a narrower slice of the market that also includes sustainability linked bonds and notes, for example. More generally, sustainable bond data provided by different data sources can vary by significant margins. Last year, for example, UNCAD reported that global green bond issuance reached $872.2 billion while Bloomberg reported an even higher $939 billion versus $746.8 million compiled by SIFMA. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesAfter a sharp stock sell-off at the beginning of August affecting the S&P 500 index as well as other major stock market indices, markets rebounded in response to positive economic data on inflation and retail sales that helped calm recession fears and a signal by the Federal Reserve that it was ready for interest rate cuts. For the full month, the S&P 500 registered a total return gain of 2.4% and 27.1% over the trailing 12-months, the NASDAQ 100 gained 1.2% and expanded the twelve month gain to 27.3% while the small cap Russell 2000 index, whose momentum may have faltered, dropped 1.5% and recorded a trailing twelve month gain of 18.5%. The best performing large cap sectors included Consumer Staples, Real Estate and Health Care, up 5.8%, 5.6% and 5.0%, respectively, while Real Estate and Health Care also ranked in the top three sectors of the mid-cap and small cap indices. Against this backdrop, focused sustainable mutual funds and ETFs, a combined total of 1,446 funds and share classes with $360.6 billion in assets under management, registered an average increase of 1.8% in August and an average 15.4% over the trailing twelve months. Sustainable international equity funds led with an average gain of 2.4% while US equity funds added an average of 1.9%.A selection of five US and international equity ESG Leaders indices and one fixed income benchmark, for a total of six benchmarks constructed by MSCI around ESG screening and exclusionary criteria, bounced back in August. Of the five equity-oriented ESG Leaders indices, the three foreign indices led their conventional counterparts over the 1-month, 3-month, YTD and trailing 12-month intervals. For the month of August, the MSCI Leaders ACWI ex USA ESG Index, EAFA ESG and Emerging Markets ESG led their conventional counterparts by levels ranging from a low as 43 bps to a high of 139 bps. However, their US large-to-medium cap as well as small cap counterparts achieved the opposite results in that they lagged over the four time periods up to 12-months. In August the MSCI USA ESG Leaders Index and USA Small Cap ESG Leaders Index fell behind their conventional counterparts by 4 bps and 35 bps, respectively. At the same time, the Bloomberg MSCI USA Aggregate ESG Focus Index came in even relative to the underlying Bloomberg US Aggregate Bond Index. Over the intermediate and long-term time frames, relative results through August have been faltering. Evaluated over three time periods, from three years to ten years, the best interval, over the five-year period, produces a 50% level of outperformance relative to conventional benchmarks. Over the three-year interval, only one benchmark, the MSCI USA ESG Leaders Index, managed to outperform its conventional counterpart. It did so by an annualized average 74 bps. Sources: Morningstar Direct, MSCI, SIFMA/Dealogic, various fund prospectuses and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Trends Monitor-August 1, 2024

The Bottom Line: Sustainable fund assets expanded modestly with outflows, sustainable bond issuance declined in Q2, selected ESG indices underperformed, and fund launches remained anemic. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,451 funds/share classes in total, based on Morningstar classifications, closed the month of July at $349.4 billion. This represents a $6.6 billion net increase, or a net gain of 1.9% versus $342.8 billion the previous month. This also brings the combined total of focused sustainable long-term mutual funds and ETFs to within $100 million of the month-end high point for assets reached in March of this year. Based on a simple calculation that reflects the average July total return gains recorded by long-term mutual funds at 2.1% and 2.7% by ETFs, it is estimated that sustainable funds experienced cash outflows during July in the amount of $1.1 billion--offset by capital appreciation. Since the start of the year, focused sustainable mutual funds and ETFs have added a combined $17.7 billion in net assets, for an increase of 5.3%. Mutual funds accounted for about 3X of the gain. New Sustainable Fund LaunchesThere were no new mutual fund or ETF launches in July, reflecting a continuing drought in sustainable fund launches. During the seven-month interval to the end of July, a total of five fund launches were recorded, all ETFs. This record stands in sharp contrast to the 62 funds that were launched during the comparable period in 2023. During the month of July, there were two ETF closures, both managed by Rafferty Asset Management, including the $3.3 million Direxion Dollar Global Clean Energy Bull 2X Shares and the $21.3 million Direxion Hydrogen ETF. The management company noted that the decision to close the funds was based "on the view that each fund could not conduct its business and operations in an economically efficient manner over the long term due to each fund's inability to attract sufficient investment assets to maintain a competitive operating structure."The scarcity in sustainable fund launches, starting after May of last year, may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund launches. At the same time, commitments to ESG integration do not appear to have subsided, based on reporting by the largest fund companies. Green, Social and Sustainability Bonds Issuance The latest available data according to SIFMA shows that global green, social and sustainable bond issuance in the second quarter of 2024 reached $207.1 billion. This represents a quarter-over-quarter decline of $62.4 billion, or a drop of 23.2%. Green bonds accounted for 68.3% of global issuance while sustainability bonds and social bonds represented 19.7% and 12.0%, respectively, of total issuance. Global issuance year-to-date reached $476.6 billion versus $468.9 billion over the comparable period in 2023. This is a slight $7.7 billion pick up in sustainable bond issuance, or an increase of 2%. US sustainable bond issuance in the second quarter registered $37.0 billion, down $6.5 billion from $43.5 billion issued in the first quarter of 2024, or a 2% decline. That said, June saw a slight pick-up in issuance, increasing from $11.9 billion to $13.2 billion. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesThe S&P 500 posted its best single day return of the month, up 1.58%, on July 31st, to end the month of July with a total return gain of 1.2% (this was before giving up 6.1% over the first three days of August when markets dropped across the globe, presumably instigated by weaker than expected US jobs report. Markets pretty much recovered by the end of the second full week of August). The Nasdaq 100 dropped 1.6% in July, value outperformed growth stocks and small as well as mid-cap stocks added 10.2% and 5.9%, respectively, in a rotation by investors from mega cap stocks to smaller companies and other sectors fueled by falling inflation and the anticipation of interest rate cuts that will stimulate wider economic growth that will benefit smaller companies. The Russell 2000 small-cap index has surged 7% since July 11 to the end of the month, while the S&P 500's gains have been led by financials, energy, and real estate sectors. Magnificent Seven tech stocks (i.e. Apple, Microsoft, Amazon, Alphabet, Meta, Nvidia and Tesla) had seen declines, exacerbated by a global sell-off in semiconductor companies. US bond prices got a lift as yields on 10-Year US Treasury securities ended the month at 4.1%, dropping by 27 basis points from 4.4% at the end of June in anticipation of lower rates. The Bloomberg US Aggregate Bond Index outperformed the S&P 500 in July, adding 2.3%. Year-to-date and 12-month gains were solidified, coming in at 1.6% and 5.1%, respectively.While emerging markets eked out a narrow 0.3% uptick in July, the MSCI ACWI ex USA and MSCI EAFE indices exceeded the results achieved by larger cap US indices, adding 2.3% and 2.9%, respectively. Reversing a three-month trend of outperformance, a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, constructed by MSCI around ESG screening and exclusionary criteria, was dominated in July by ESG indices that trailed their conventional counterparts. Of the five equity-oriented ESG Leaders indices, three foreign indices fell behind their conventional counterparts in July while one index, consisting of large and mid-cap US-based stocks, underperformed. The sustainable investment-grade intermediate bond index came in even with its conventional counterpart while the MSCI USA Small Cap ESG Leaders Index was the only one to outperform its conventional counterpart. Total return performance deviations ranged from 12 basis points to 92 basis points Over the intermediate and long-term time frames, relative results are mixed. Sources: Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-July 1, 2024

The Bottom Line: Sustainable fund assets expanded modestly, sustainable bond issuance remains strong, ESG relative performance results were positive, but fund launches were still anemic. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,454 funds/share classes in total, based on Morningstar classifications, closed the month of June at $342.8 billion in net assets. This represents a modest $3.7 billion net pick up in assets, or an increase of 1%, versus $339.1 billion the previous month and brings the combined total of focused sustainable mutual funds and ETFs to within a hair breadth away of the month-end high point for assets reached this year in March. Since then, net assets have been flat. Based on a simple calculation that reflects the average June total return gains recorded by long-term mutual funds at 0.8% and -1.23% by ETFs, it is estimated that sustainable funds experienced narrow cash inflows in the amount of $3.1 billion. Since the start of the year, focused sustainable mutual funds and ETFs have added a combined net of $11.1 billion in assets, 88% of which is attributable to mutual funds. New Sustainable Fund LaunchesEven as one ETF was launched in June 2024, versus zero fund launches last month, it's fair to say that the drought in sustainable fund launches continued through the end of June. During the six-month interval, only five new funds were introduced, all ETFs. This stands in sharp contrast to the 59 funds that were launched during the comparable period in 2023. At the same time, one ETN, one ETF and two mutual funds were shuttered. The new ETF is the Invesco MSCI Global Climate 500 ETF, making its debut with $1.6 billion in assets. The fund intends to track the performance of approximately 500 stocks included in the MSCI ACWI ex 6 Countries Index that meet certain environmental and climate criteria relative to their peers, including their own reductions in carbon and greenhouse gas emissions.The scarcity in sustainable fund launches, starting after May of last year, may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings. At the same time, commitments to ESG integration do not appear to have subsided, based on reporting by the largest fund companies. Green, Social and Sustainability Bonds Issuance While second quarter data is not yet available, green debt issuance globally is running at a fast pace and projections for green, social and sustainable bond (GSS) issuance indicate that global issuance could reach and perhaps exceed the USD 1 trillion-dollar mark. Moody's, for example, projects that green, social and sustainable bond issuance could reach US$ 950 billion in 2024, slightly higher than 2023's US$ 946 billion, while S&P's forecasts indicate that issuance could rise to above the US$ 1 trillion mark and perhaps equal or exceed the record level registered in 2021. According to Morgan Stanley issuance will be fueled by the perception that climate is the biggest single existential threat of our time and issuers are focusing more narrowly on their climate and transition objectives, particularly as the year 2030 gets closer. Another factor, according to Morgan Stanley, is the tremendous demand for power because of the AI boom. This phenomenon is putting increased demand on the need for additional power sources, renewable or otherwise, including alternative power sources, that will require significant investments to meet the emerging demand. Other drivers include the increasing role of sovereign issuers, both in emerging and developed markets. As of April 2024, 53 sovereign issuers have issued GSS-labeled bonds totaling $540 billion. Beyond the main players, countries such as Chile, Indonesia, Japan, Iceland and Australia have issued green bonds in 2024. In addition, voluntary frameworks, such as the International Capital Market Association (ICMA) introduced new criteria and further guidelines to support the green, social, sustainability, and sustainability-linked bond principles as well as the implementation of regulations, such as the EU Bond Standard, that attempts to establish clarity and comparability for sustainable bonds across Europe that's going into effect starting on December 21, 2024. On the positive side, such standards should bring about a higher level of confidence in such instruments to investors. While other reports covering sustainable debt volumes in the first quarter 2024 quote even higher volumes, the latest available data according to SIFMA show that global green, social and sustainable bond issuance in the first quarter of 2024 rose to $256.5 billion, for a Q/Q $127.9 billion increase or nearly doubling the issuance level recorded during the previous quarter. January was the strongest month, during which $123.2 billion in green, social and sustainability bonds were issued—led by green bonds over the quarter (but not in the US where sustainability bonds dominated). Issuance volumes moderated in February and March. U.S. issuance gained too, reaching $36.5 million for a Q/Q gain of 35% and exceeding the previous 2Q 2023 quarterly high mark since early 2022. This came on the heels of strong Q1 aggregate issuance levels for bonds in the US that saw an increase of $2.5 trillion for a 26% gain. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesFueled by enthusiasm for AI and expected interest-rate cuts before the end of the year in the light of softening economic data, the S&P 500 continued to register gains in June. After recording a 5% total return in May, the index posted seven new closing highs in June and ended the month up 3.6%. This was the benchmark's fifth monthly gain this year, for a year-to-date increase of 15.9% and a trailing twelve-month return of 24.6%. At the same time, the S&P 500 ESG index, designed to meet S&P's sustainability criteria while maintaining similar overall industry group weights as the S&P 500, was up 3.4% in June. While trailing in June, the ESG index is ahead of the S&P 500 with returns of 15.8% year-to-date and 25.1% over the trailing twelve-months. The performance of the conventional large cap index and ESG version have been driven by a small number of growth-oriented technology companies that now dominate the index. The same companies drove the performance of the S&P 500 Growth Index, up 6.98% in June, versus the S&P 500 Value Index that sustained a narrow -0.65% decline. This dynamic also propelled large cap conventional and sustainable growth funds to achieve top results in June. At the same time, small companies experienced another challenging month, with the Russell 2000 dropping 0.93%, after dropping around 1% in May and an even lower -1.69% posted by the Russell 2000 Value Index. On the bonds side, the Bloomberg Aggregate US Bond Index posted a slight 0.95% gain in June and a positive 2.6% increase over the trailing twelve months. During the month, the FOMC met and as expected, kept interest rates unchanged. The 10-year U.S. Treasury Bond closed at a yield of 4.36%, down from the prior month's 4.51%Overseas, strong performance in emerging markets pushed the MSCI Emerging Markets Index higher by 3.94% in June while the MSCI ACWI, ex USA Index and MSCI EAFE Index gave up 0.10% and -1.61%, respectively. Against this backdrop, based on a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, all constructed by MSCI around ESG screening and exclusionary criteria, four of the six ESG indices recorded positive relative performance results in June while only two beat their conventional counterparts over the trailing twelve months. Total return margins of outperformance in June ranged from a low of 9 bps to a high of 1.02%. At the same time, the MSCI USA Small Cap ESG Leaders Index lagged in June while the Bloomberg MSCI US Aggregate ESG Focus Index came in even with its conventional counterpart. Over the intermediate and long-term time frames, based on three-, five- and ten-year time periods, the results remain mixed but improve over longer time periods. Over the trailing three-year time horizon, only two of the six benchmarks, or 33%, outperform but this ratio improves to four out of five, or 80%, over the trailing ten-year time interval. Sources: Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-June 1, 2024

The Bottom Line: Sustainable fund assets expanded due to market, social bond issuance was strong, ESG relative performance results were positive, but fund launches suffered. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Focused sustainable long-term fund assets under management attributable to mutual funds and ETFs (excluding money market funds), 1,475 funds/share classes in total, based on Morningstar classifications, closed the month of May at $339.1 billion in net assets. This represents an increase of $10.1 billion, or a net gain of 3%, which doesn't completely offset April's $13.9 billion decline but still closes the month with the second highest level of AUM so far this year. Based on a simple calculation that reflects the average May total return gains recorded by long-term mutual funds at 3.5% and 4.9% by ETFs, it is estimated that sustainable funds experienced net cash outflows in the amount of $2.9 billion. Long-term mutual funds, which are ahead by $6.4 billion since December 31st, sustained an estimated $3.3 billion in outflows. At the same time, the assets of the ETF segment registered a 2024 month end high level of $102.5 billion and recorded estimated inflows of $0.42 billion as of the month end. New Sustainable Fund LaunchesThe drought in sustainable fund launches continued through the end of May. During the latest month, there were no new listings of sustainable mutual funds or ETFs. At the same time, there was one fund closure in May (not factoring in share class closures), the small cap JP Morgan Small Cap Sustainable Leaders Fund with its eight share classes and combined total of $25.2 million in assets. So far this year, there have been a total of only four new fund introductions. These consisted entirely of ETFs. By way of comparison, 54 new funds were launched during the same period in 2023, including a combined total of 29 funds listed in May alone. In the following seven months, 14 funds were launched, and the number of monthly listings trended lower in succession. The scarcity in sustainable fund launches, starting after May of last year may be attributable to the fact that anti-ESG movement in the US had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings. At the same time, commitments to ESG integration do not appear to have subsided, based on reporting by the largest fund companies. Green, Social and Sustainability Bonds Issuance While other reports covering sustainable debt volumes in the first quarter 2024 quote even higher volumes, the latest available data according to SIFMA show that global green, social and sustainable bond issuance in the first quarter of 2024 rose to $256.5 billion, for a Q/Q $127.9 billion increase or nearly doubling the issuance level recorded during the previous quarter. January was the strongest month, during which $123.2 billion in green, social and sustainability bonds were issued—led by green bonds over the quarter (but not in the US where sustainability bonds dominated). Issuance volumes moderated in February and March. U.S. issuance gained too, reaching $36.5 million for a Q/Q gain of 35% and exceeding the previous 2Q 2023 quarterly high mark since early 2022. This came on the heels of strong Q1 aggregate issuance levels for bonds in the US that saw an increase of $2.5 trillion for a 26% gain. One of the reasons for issuance level variations relative to SIFMA is attributable to the inclusion of sustainability-linked bonds, a segment of the sustainable debt instruments market that has been subject to regular criticism from analysts and asset managers who note that the bond targets are weak, are more likely to be missed and are hard to monitor. Results for April reported by Bloomberg, covering a broader universe of sustainable bonds, indicate that issuance of green, social, sustainable, sustainability-linked bonds as well as notes, reached $145.8 billion and $801.1 billion year-to-date. Also, according to Bloomberg, bonds financing social initiatives reached an all-time monthly high in April at $14.3 billion while green bonds (green bonds and bonds issued pursuant to the Green Bond Principles) reached $90 billion. According to published reports, the Treasury Borrowing Advisory Committee, an industry group that works closely with the Treasury, proposed in early May the consideration of various new securities such as callable bonds, different maturities of floating-rate and inflation-linked bonds, and the green-branded securities. The U.S. is the only major sovereign-debt issuer in developed markets that hasn't been selling green bonds, which have swelled into a $2.6 trillion market. The U.S. Treasury advisory group estimated that 17% of green bonds were issued by sovereign governments. In fact, the latest sovereign issuer, Qatar, raised $2.5 billion at the end of May through its first ever green bond. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesMay was a strong month for stocks as well as bond market indices, reversing April's declines. All three major stock benchmarks, the S&P 500 Index, Dow Jones Industrial Average and the Nasdaq Composite, reached new all-time highs and recorded, by month-end, gains of 5.0%, 2.6% and 7.0%, respectively. Ten of the eleven S&P 500 sectors ended the month on a positive note. The Tech sector gained 10%, Utilities added 9% while the Energy sector, due to falling oil prices, declined 0.4%. At the same time, all mid- and small-cap sectors recorded positive results. While well short of its high as the index continues to lag, the small cap Russell 2000 index managed to post a gain slightly above 5.0% that edged out its large cap counterpart by six basis points. Against this backdrop, a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, constructed by MSCI around ESG screening and exclusionary criteria, recorded positive relative performance results in May as four of six ESG Leaders indices outperformed their conventional counterparts. These include the three indices tracking international markets and one index seeking to replicate the performance of large and medium cap US stocks. The three indices are the MSCI ACWI ex USA ESG Leaders Index, MSCI EAFE ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index, which pulled ahead of their conventional counterparts by 18 bps, 26 bps and 56 bps, respectively. Only the MSCI USA ESG Leaders Index that tracks large and mid-cap stocks missed the mark while the Bloomberg MSCI US Aggregate ESG Focus index was on par with its underlying benchmark. That said, the reverse is true regarding 12-month results when four of five ESG indices lagged their conventional counterparts. Over the intermediate and long-term time frames, based on three-, five- and ten-year time periods, the results are mixed but improve over longer time periods. Over three years, only one of six indices outperform, but this expands to three outperforming ESG indices over five years and four out of five outperforming ESG indices over the 10-year interval. Sources: Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-May 1, 2024

The Bottom Line: Sustainable funds gave up assets again in April while green bonds flourished. Relative performance results were mixed, and fund launches remained muted. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Sustainable long-term fund assets under management attributable to mutual funds and ETFs, 1,506 funds/share classes (focused funds) in total, based on Morningstar classifications, closed the month of April at $329 billion in net assets. This represents a month-over-month decrease of $13.9 billion, or a 4.1% decline and a year-to-date drop of $2.7 billion. Based on a simple calculation that reflects the average -3.2% total return recorded by long-term funds in April, it is estimated that sustainable funds experienced net cash outflows in the amount of $2.9 billion. Mutual funds, which are still ahead relative to December 31st by a narrow $1.5 billion, sustained an estimated $2.0 billion in outflows. At the same time, the assets of the ETF segment dropped below their year-end 2023 high level and recorded estimated outflows of $0.9 billion in April. New Sustainable Fund LaunchesThe cooling off in sustainable fund introductions continued into April when only one sustainable ETF was launched. The new fund, Carbon Collective Short Duration Green Bond Fund, managed by Tidal Investments LLC and sub-advised by Carbon Collective Investing, LLC as well as Artesian Capital Management (Delaware) LP, is the first green bond fund to have been introduced since the launch of the rebranded Franklin Liberty Federal Tax-Free Bond ETF, renamed the Franklin Municipal Green Bond ETF, as of May 3, 2022. During the year-to-date interval, there have been no new mutual fund listings. Averaging just 1 new fund introduction per month in 2024, this compares to an average of 11 monthly listings in 2023 up to May of the same year. Thereafter, the average for the next seven months dropped to two new fund listings per month. This development may be linked to the anti-ESG movement in the US that had gained momentum in the second quarter of 2023 and fund companies may have opted to lower their profile by curtailing focused fund offerings. At the same time, commitments to ESG integration does not appear to have subsided, based on reporting by the largest fund companies. Green, Social and Sustainability Bonds Issuance According to the latest data provided by SIFMA, global green, social and sustainable bond issuance in the first quarter of 2024 rose to $256.5 billion, for a Q/Q $127.9 billion increase or nearly doubling of the issuance level recorded during the previous quarter. January was the strongest month, during which $123.2 billion in green, social and sustainability bonds were issued—led by green bonds over the quarter (but not in the US where sustainability bonds dominated). Issuance volumes moderated in February and March. U.S. issuance gained too, reaching $36.5 million for a Q/Q gain of 35% and exceeding the previous 2Q 2023 quarterly high mark since early 2022. This came on the heels of strong Q1 aggregate issuance levels for bonds in the US that saw an increase of $2.5 trillion for a 26% gain. Other reports covering sustainable debt volumes in the first quarter 2024 quote even higher volume numbers. Moody's, for example, in a report issued on May 1 reported that issuance rose by 36% in the first quarter to $281 billion. Total issuance was up from $207 billion in the fourth quarter, and more or less in line with the same quarter a year ago. The report also noted that the green-bond segment led the way with $169 billion worth of new issue activity, followed by $55 billion of sustainability bonds, $48 billion in social bonds, and $10 billion of sustainability-linked bonds. One of the reasons for the variation relative to SIFMA data is attributable to the inclusion of sustainability-linked bonds, a segment of the sustainable debt instruments market that has been subject to regular criticism from analysts and asset managers who note that the bond targets are weak, they are more likely to be missed and are hard to monitor. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesInvestor optimism during the first quarter of the year shifted to lower gear in April as investors came to realize that interest rates are not likely to move lower any time soon and Middle East tensions escalated. At the same time, corporate earnings came in above the 1% estimated gain and provided some ballast to the equity market. All three major indices declined in April, with large cap growth stocks outperforming value stocks but the reverse was true for small cap stocks. The S&P 500 Index recorded a 4.08% decline while the Russell 2000 Index, consisting of small companies, dropped even lower, giving up 7.04%. After finally recording a monthly gain of 0.9% in March, bonds sold off as 10-year Treasury's posted the highest yield so far this year, ending the month at 4.69% versus 4.20% as of March 28, 2024. US investment-grade intermediate bonds, as measured by the Bloomberg US Aggregate Bond Index, dropped 2.53% and registered a wider decline of 3.28% year-to-date. Outside the U.S., the MSCI ACWI ex U.S. registered a decline of 1.8%, benefiting from the stronger performance in emerging markets that recorded an increase of 0.45%. Against this backdrop, April's performance of a selection of five US and international equity ESG Leaders indices and one fixed income benchmark, relative to their conventional counterpart indices as calculated by MSCI, reflected mixed results. Three benchmarks tracking international markets, the MSCI ACWI ex USA ESG Leaders Index, the MSCI EAFE ESG Leaders Index and the MSCI Emerging Markets ESG Leaders Index beat their conventional counterparts in April by a range between 26 basis points (bps) and 53 bps. At the same time, the performance of sustainable bonds was in line with conventional bonds while two U.S focused ESG indices, one tracking large and mid-cap companies and the other small cap companies, trailed their conventional counterparts. While relative results across the six indices improved on a year-to-date basis, this is not the case across the trailing twelve months during which interval only one of six benchmarks outperformed. Over the intermediate three-to-five-year time intervals, relative performance results were mixed while over the long-term, covering just five of the six ESG Leaders indices, four of the five indices outperformed. Sources: Morningstar Direct, Bloomberg, MSCI, SIFMA/Dealogic and Sustainable Research and Analysis LLC

Read More

Sustainable Investing Monitor-April 1, 2024

The Bottom Line: Sustainable funds gave up assets in March while green bonds flourished. Relative performance results lagged, and fund launches continue to cool off. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Sustainable long-term fund assets under management attributable to mutual funds and ETFs, 1,527 funds/share classes in total, based on Morningstar classifications, closed the month of March at $342.9 billion in net assets. This represents a month-over-month increase of $5.7 billion, or 2.4%, or just about half the gain realized in February when assets increased by $11.3 billion. Based on a simple calculation predicated on the average 2.4% March total return performance results achieved by long-term fund, it is estimated that sustainable funds experienced net cash outflows of $2.4 billion. Since the start of the year, sustainable mutual funds and ETFs added a net of $11.3 billion, for a three-month gain of 3.4%. While the ETF segment has still not exceeded the month-end high level recorded at the end of July 2023, mutual funds have managed to eclipse the previous month-end high of $330.6 billion as of the same month. New Sustainable Fund LaunchesReflecting a cooling off in sustainable fund introductions, only three new sustainable funds were launched in March of this year. All are ETFs, including the actively managed Nuveen Sustainable Core ETF (NSCR) and the index tracking iShares Energy Storage & Materials ETF (IBAT) as well as Inspire 500 ETF (PTL). Alongside, there were no new mutual fund introductions in March. Through the end of the first quarter, a total of only four sustainable funds have been launched, all four ETFs. There were no new sustainable mutual fund listings so far this year. By way of comparisons, 18 sustainable ETFs were launched in Q1 2023 along with six sustainable mutual funds, for a total of 24 funds (excluding new share classes). The number of sustainable fund launches also trails when compared to the number of conventional funds that started operations in the first quarter of this year.Green, Social and Sustainability Bonds Issuance According to Bloomberg News, issuance of new green bonds, the largest category of sustainable debt by volume, reached $187.7 billion in the first quarter. Record sales in January and February boosted the quarterly figure, "driven by governments taking advantage of the sanguine credit markets to bring large deals." At the same time, sales of sustainability bonds used to fund both green and social projects totaled $64.3 billion in the same period. These data points are expected to be confirmed later in the month. As reported in February, according to data provided by SIFMA, global green, social and sustainable bond issuance in the fourth quarter of 2023 reached $128.9 billion, for a Q/Q $19.5 billion decline or 10.6%. 4Q US issuance, which declined for the second quarter in a row, dropped to $27 billion, down $1.3 billion or -4.4%. Global 2023 issuance reached $745.9 billion, for a Y/Y gain of $33.3 billion or 4.7%. Notwithstanding the deceleration in the US in the second half of 2023, total US issuance in 2023 rose to $122.0 billion, up from $93.8 billion in 2022 or a 30 Y/Y increase. It should be noted that SIFMA sustainable bonds issuance trends exclude certain types of sustainable bonds, such as sustainability-linked bonds and notes. According to data published by another source, for example Bank of America, total global sustainable bond issuance in 2023 reached $828 billion, for a Y/Y 7% gain. Of this sum, green bonds account for 59% of the total, or $489 billion, up 12% Y/Y. Some other data sources have arrived at even higher numbers for global issuances. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesInvestor optimism about the U.S. economy, earnings growth, enthusiasm about artificial intelligence (AI) opportunities, and, although these had begun to moderate, expectations for interest-rate cuts later this year, powered the broad stock market higher to end the month and the quarter at a new all-time high of the year. The S&P 500 added 3.2% in March and advanced 10.6% in the quarter to cap off its best three-month interval since 2019. The Nasdaq 100 was up 1.23%, 8.72% for the quarter and 39.65% over the trailing twelve-months, as the new Gang of Four stocks, including Nvidia, Microsoft, Meta Platforms (META) and Amazon.com recorded strong gains. Small cap stocks, as measured by the Russell 2000, exceeded the performance of large cap stocks with a gain of 3.58% but continue to trail large caps over the quarter and trailing twelve months at 5.18% and 19.7%, respectively. Outside the US, emerging markets outperformed developed and emerging markets, combined, adding 3.3% versus 3.1%. The Bloomberg US Aggregate Bond Index squeezed out a small gain, adding 0.92% in March and ending in the red for the quarter with a drop of 0.78%. Against this backdrop, sustainable mutual funds and ETFs combined, a total of 1,521 funds and share classes at the end of March, gained an average of 2.4% in March, 4.4% over the first quarter of the year and 13.0% over the trailing twelve months. US stock funds gained an average of 3.3%, taxable bond funds were up 0.91% and international equity funds recorded a gain of 2.7%. At the same time, the selection of five US and international equity ESG indices and one fixed income benchmark, calculated by MSCI, were dominated by benchmarks that either matched or underperformed their conventional counterparts. Two of six ESG indices outperformed their conventional counterparts. These include the MSCI USA ESG Leaders Index and the MSCI USA Small Cap ESG Leaders Index that outperformed their conventional counterparts in March by 49 and 29 basis points, respectively. Except for the small cap index over the trailing twelve months, the two indices also outperformed their conventional counterparts on a year-to-date basis and trailing twelve months. In contrast, the three selected non-US indices each lagged their conventional counterparts in March by a range between 3 and 44 basis points. The same indices underperformed their conventional counterparts over the trailing three- and twelve-month intervals. Concurrently, the Bloomberg Barclays MSCI US Aggregate ESG Focus Index matched the performance of its counterpart conventional benchmark. Over the intermediate-to-long term, intervals of three, five and ten years, relative performance results tend to be mixed. Sources: Morningstar Direct, Bloomberg, MSCI, Bank of America and Sustainable Research and Analysis.

Read More

Sustainable Investing Monitor-March 1, 2024

The Bottom Line: Sustainable funds added net assets in February while green bonds flourished. Relative performance results lagged, and fund launches were missing in action. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Sustainable long-term fund assets under management attributable to mutual funds and ETFs, 1,537 funds/share classes in total, based on Morningstar classifications, closed the month of February at $337.2 billion in net assets, adding $11.3 billion, or a 3.5% increase, versus a decline of $5.8 billion the previous month. This represents a month-end peak level since December 2022. Based on a simple calculation, it is estimated that sustainable funds experienced net cash inflows in February, sourced to mutual funds and ETFs. Mutual funds and ETFs added an estimated $1.3 billion and $1.2 billion, respectively, but the dominant contributor to their gains was due to capital appreciation as equity markets continued their strong start of the year while intermediate-investment grade bonds posted declines. New Sustainable Fund LaunchesFebruary passed without a single new sustainable mutual fund or ETF launch. By way of comparison, six new funds were listed during February 2023, including two mutual funds and four ETFs, bringing the cumulative two-month 2023 launches to 22—now 21 funds behind. Mutual fund and ETF listings started to decelerate following the launch of 29 funds in May of 2023. During the month of February there were several fund closings. Nine ETFs closed, including two with over $30 million in net assets. Notable is the closing of Wisdom Tree's three ESG ETF offerings, with a combined total of $100 million in assets prior to closing. There were also two sustainable mutual fund closings, including one fund managed by Angel Oak that was acquired by an ETF managed by the same firm that also employs an identical ESG integration approach. Green, Social and Sustainability Bonds Issuance Final numbers through February are still to be determined, but according to data compiled by Bloomberg, sales of green, social, sustainability and sustainability-linked bonds reached around $90 billion in February. This, according to Bloomberg, is close to the record of roughly $91.3 billion issued in February 2023. The same source reported that sales of green bonds reached a record $54.7 billion, the most active level of issuance since the inception of the green bonds market in 2007. This follows a record January during which about $83.3 billion in green bonds were issued. As reported last month, according to data provided by SIFMA, global green, social and sustainable bond issuance in the fourth quarter of 2023 reached $128.9 billion, for a Q/Q $19.5 billion decline or 10.6%. 4Q US issuance, which declined for the second quarter in a row, dropped to $27 billion, down $1.3 billion or -4.4%. Global 2023 issuance reached $745.9 billion, for a Y/Y gain of $33.3 billion or 4.7%. Notwithstanding the deceleration in the US in the second half of 2023, total US issuance in 2023 rose to $122.0 billion, up from $93.8 billion in 2022 or a 30 Y/Y increase. It should be noted that SIFMA sustainable bonds issuance trends exclude certain types of sustainable bonds, such as sustainability-linked bonds and notes. According to data published by another source, for example Bank of America, total global sustainable bond issuance in 2023 reached $828 billion, for a Y/Y 7% gain. Of this sum, green bonds account for 59% of the total, or $489 billion, up 12% Y/Y. Some other data sources have arrived at even higher numbers for global issuances. Short-Term Relative Performance: Selected ESG Indices vs. Conventional IndicesEquity markets continued their strong start to the year in February, with the S&P 500 Index recording its fourth consecutive monthly gain. The index closed above 5000 for the first time and produced a total return of 5.3%, expanding January's gain of 1.7% to reach an increase of 7.1% since the start of the year. Non-US stocks, including large and mid-cap companies representing developed and emerging market countries, were up 2.53% according to the MSCI ACWI ex USA Index. At the same time, the US bond market retreated as concerns that the Federal Reserve may be less inclined to lower interest rates amid economic strength led to rate reduction expectations being adjusted from March to June. Bonds declined 1.41% in February and 1.68% year-to-date, per the Bloomberg US Aggregate Bond Index. Reversing January's results, during which a selection of six US and international equity ESG indices and one fixed income benchmark calculated by MSCI either matched or outperformed their conventional counterparts, only two of six ESG indices either matched or outperformed their conventional counterparts in February. These include the MSCI USA ESG Leaders Index and the Bloomberg MSCI US Aggregate ESG Focused Index that outperformed or matched their conventional counterparts by 22 bps and 0 bps, respectively. Emphasizing companies that are assigned high environmental, social and governance ratings by MSCI relative to their sector peers, the year-to-date results of these selected indices are now mixed—with three domestic tracking equity and fixed income ESG indices outperforming while the three international ESG indices are lagging. Similar outcomes are applicable to the intermediate-term time horizons of three and five years, but with shifting geographic patterns of outperformance/underperformance. Sources: Morningstar Direct, Bloomberg, MSCI, Bank of America and Sustainable Research and Analysis.

Read More

Sustainable Investing Monitor-February 1, 2024

The Bottom Line: Fund's net assets declined in January, also recording positive relative performance, while new fund launches lagged and sustainable bonds gain in 2023. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Long-terms sustainable fund assets under management attributable to mutual funds and ETFs, 1,551 funds/share classes in total based on Morningstar classifications, closed the month of January with $325.9 billion in net assets, dropping $5.8 billion, or 1.8% of assts versus December 2023. This represented a setback relative to the monthly average gain in assets of $1.7 billion over the previous twelve months. Sustainable mutual fund assets recorded a net decline in January, ending the month at $228.6 billion, for a net reduction of $1.2 billion, or 0.5%. On the other hand, assets sustainable to ETFs dropped by $4.6 billion or a decline of 4.6%. Based on a simple calculation, it is estimated that sustainable funds experienced net cash inflows in January, sourced to mutual funds. Mutual funds likely saw estimated net outflows in the amount of $400,000 while ETFs experienced and estimated $1.6 billion in outflows. The divergence between net asset changes affecting mutual funds and ETFs is attributable to some significant variations in the composition of funds that make up each segment and the performance of some of these segments in January. For example, the sustainable ETF segment includes 16 funds/share classes, making up 7% of ETF assets classified in the Miscellaneous category that dropped 11.4% in January. The same category in the mutual funds segment is comprised of only 7 funds/share classes, makes up about 0% of mutual fund assets and recorded a decline of 7.9%. New Sustainable Fund Launches One new ETF was launched in January but there were no new mutual fund listings. By way of comparison, there were two ETF listings and 14 mutual fund launches in January of last year. Mutual fund and ETF listings started to decelerate following the launch of 29 funds in May of 2023. During January, there were also five sustainable fund closings, including one mutual fund and four ETFs. The five funds likely closed due to their inability to attract assets. Four of the five funds had less than $10 million in AUM while the fifth fund was likely unable to reach scale beyond its seed capital. Green, Social and Sustainability Bonds Issuance According to data provided by SIFMA, global green, social and sustainable bond issuance in the fourth quarter of 2023 reached $128.9 billion, for a Q/Q $19.5 billion decline or 10.6%. 4Q US issuance, which declined for the second quarter in a row, dropped to $27 billion, down $1.3 billion or -4.4%. Global 2023 issuance reached $745.9 billion, for a Y/Y gain of $33.3 billion or 4.7%. Notwithstanding the deceleration in the US in the second half of 2023, total US issuance in 2023 rose to $122.0 billion, up from $93.8 billion in 2022 or a 30 Y/Y increase. US green, social and sustainability bonds issuance accounted for 1.5% of total US fixed income issuance in 2023. It should be noted that SIFMA's sustainable bonds issuance trends exclude certain types of sustainable bonds, such as sustainability-linked bonds and notes. According to data published by another source, for example Bank of America, total global sustainable bond issuance in 2023 reached $828 billion, for a Y/Y 7% gain. Of this sum, green bonds account for 59% of the total, or $489 billion, up 12% Y/Y. Some other data sources have arrived at even higher numbers for global issuances. Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices Performance results posted in the first month of the year were mixed. While not as rigorous, the S&P 500 Index registered its third consecutive monthly gain in January, rising 1.7%, as stocks responded to stronger than expected economic reports without upward pressure on inflation. These data points were complemented by strength in corporate earnings and sales. Outside the US, emerging markets slumped 4.64% likely due to concerns regarding the economic outlook for China, pushing the MSCI ACWI, ex USA Index lower by almost 1%. At the same time, US investment-grade intermediate bonds gave up 0.27% for the month as expectations for the number and timing of interest rate cuts were tempered toward the end of the month based on the Federal Reserve Banks hawkish tone at its January meeting. Global government bonds were down 1.8%. Against this backdrop, a selection of six US and international equity ESG Leaders indices and one fixed income benchmark calculated by MSCI either matched or outperformed their conventional counterparts. This is in sharp contrast to December's relative performance when only one of six indices outperformed their conventional counterparts. That said, performance results are mixed over the intermediate-term, including the trailing three and five year time intervals. Notes of Explanation: Revised and updated 2-19-2024. Sources: Morningstar Direct, SIFMA, and Sustainable Research and Analysis.

Read More

Sustainable Investing Monitor-January 1, 2024

The Bottom Line: Long-term fund assets gained due to market appreciation, new fund formations decelerated, sustainable bonds and the performance of selected ESG indices lagged. Long-Term Net Assets: Sustainable Mutual Funds and ETFs Sustainable long-term fund assets under management attributable to mutual funds and ETFs added $12.4 billion, or 4.2%, in net assets in December, ending the year with $331.7 billion. This was the highest month-end level achieved in 2023, reflecting a $36.8 billion net increase since the start of the year due entirely to strong market gains that were bolstered by the fourth quarter results achieved in both the stock and bond markets. ETF assets ended the year still slightly below the month-end high reached in July, but up $6.3 billion over the 12-month interval. Mutual funds, which make up 69% of sustainable fund assets, reached a month-end high of $229.8 billion at the end of December with the addition of $30.5 billion (net) over the course of the year. Note: Revised data to reflect latest updates, excluding sustainable money market funds. New Sustainable Fund Launches Two new investment funds were listed in December, consisting of two new ETFs and zero mutual funds, bringing the year-to-date total ETF launches to 32 and mutual fund launches (excluding share classes) to 36, for a combined 2023 total of 68 investment funds. There were three ETF closures in December and, excluding share classes, zero closings of mutual funds. Mutual fund and ETF listings decelerated in 2023 relative to 2022 with 28 fewer fund launches. Green, Social and Sustainability Bonds Issuance Based on preliminary data, green, social, sustainability and sustainability-linked bond issuance through the end of 2023 reached $828 billion, reflecting an increase relative to 2022 but still trailing 2021 in terms of volume. Sovereign bonds experienced gains, mainly from green bonds which also experienced an increase to $489 billion. Green bonds were 59% of labeled issuance in 2023. Issuance in the US fell from $52 billion in 2022 to $36 billion in 2023 and sustainability linked bonds dropped from $69 billion to $60 billion. Short-Term Relative Performance: Selected ESG Indices vs. Conventional Indices Markets continued to rally in December, fueled by the combination of a strong economy and reduced concerns of a looming recession, better-than-expected corporate earnings, lower inflation and an apparent end to the Federal Reserve's interest rate hikes that were expected to lead to multiple Fed rate cuts in 2024. Stocks, as measured by the S&P 500, posted a gain of 4.5% in December and a full year increase of 26.3%. At the same time, credit markets continued to rebound, gaining 3.8% in December and 5.53% for the full calendar year. Against this backdrop, mutual funds and ETFs gained an average of 5.1% in December and 13.5% over 2023. At the same time, only one of six selected ESG indices outperformed their conventional counterparts in December while four of six indices trailed behind while one ESG index matched the performance of its conventional counterpart. Over weightings/under weightings (>1%) in some sectors that may have contributed positively to performance were offset by the performance of individual stocks based on their respective weights. For the calendar year period, two of the six selected ESG indices outperformed their conventional counterparts. Sources: Morningstar Direct, Bloomberg, MSCI, Bank of America and Sustainable Research and Analysis.

Read More

Sustainable Investing Monitor-December 2023

The Bottom Line: Fund assets added $22 billion in November from market appreciation, relative ESG performance was mixed and fund launches continued to trend lower. Net Assets: Sustainable Mutual Funds and ETFs Sustainable assets under management attributable to mutual funds and ETFs gained $22.0 billion in net assets in November, after sustaining drops for three consecutive months, largely benefiting from market appreciation that saw large cap stocks post a gain of 9.1%, per the S&P 500, while investment grade intermediate bonds registered a gain of 4.5%. This was the largest monthly gain in 2023 and brings assets under management within $11.1 billion of the month end high reached in July. Mutual funds added a net of $12.8 billion while ETFs gained $9.2 billion. Based on a simple calculation, outflows were limited to an estimated $1.0 billion in November. New Sustainable Fund LaunchesOne new ETF was launched in November, bringing the year-to-date fund launch total to 66, or 22 fewer fund launches as compared to 88 launches in 2022, or a 25% decline. Ten new funds were launches in November of last year, including nine ETFs and one mutual fund. No new mutual funds were launched in November, excluding new share classes. Fund launches began to fall off relative to 2022 starting in April of this year. Green, Social and Sustainability Bonds Issuance (Q3 2023)Green, social, and sustainability bond issuance data covering Q3 2023, compiled by SIFMA, reflects a decline in issuance globally and in the US. Issuance dropped to $163 billion in Q3, for a decline of $97 billion or 41% as compared to the second quarter. Cumulative 2013 issuance reached $603.8 billion, and based on average quarterly issuance of $201 billion, it looks like the hoped for $1.0 trillion issuance level is unlikely to be reached in 2023. Relative Performance: ESG Indices vs. Conventional IndicesPositive sentiment pushed stock prices higher in the US and overseas while bond prices gained as yields declined sharply. Sustainable mutual funds and ETFs posted an average gain of 7.55% in November, with equity funds adding an average of 9.3% and bond funds recorded an average gain of 4.1%. Against this backdrop, a selection of six ESG indices published by MSCI that emphasize high ESG scores (Leaders indices) experienced mixed results in November, as three ESG indices outperformed their conventional counterparts while three indices underperformed. Over the trailing twelve months only two ESG indices outperformed. Not shown on the chart, but over the past three years only one ESG index outperformed while three ESG indices did so over the trailing five years. Sources: Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis.

Read More

Sustainable Investing Monitor-November 2023

The Bottom Line: Sustainable fund assets declined by $9.3 billion in October, relative ESG performance was positive, but fund launches and sustainable bond issuances lagged. Net Assets: Sustainable Mutual Funds and ETFs Sustainable assets under management attributable to mutual funds and ETFs dropped to $305 billion in October due to market depreciation, for a month-over-month reduction in assets of $9.3 billion, or 3%. This reflects the third consecutive monthly decline and compares to an even wider drop of $16.1 billion in September, or 6.9% of assets. On a year-to-date basis, sustainable fund assets are still up $11.3 billion. Mutual fund assets dropped by $7.1 billion in October, or 3.2%, while ETFs, which account for a slightly lower 29.4% of sustainable fund assets, gave up $3.5 billion or 3.8% of assets. A back of the envelope calculation indicates that the segment in October still experienced net inflows of around $323 million. New Sustainable Fund Launches Y-T-D, mutual fund and ETF launches are lagging, reaching 65 at the end of October versus 78 listed in 2022. For the third consecutive month in October, only one new sustainable investment fund was listed. The new Vontobel Global Environmental Change Fund, managed by Vontobel Asset Management, Inc., invests in companies whose products or services contribute to a sustainable objective in areas such as clean energy infrastructure, resource-efficient industry, clean water, building technology, low emission transportation and lifecycle management. Green, Social and Sustainability Bonds Issuance Green, social, and sustainability bond issuance data covering Q3 2023, compiled by SIFMA, reflects a decline in issuance globally and in the US. Issuance dropped to $163 billion in Q3, for a decline of $97 billion or 41% as compared to the second quarter. Cumulative 2013 issuance reached $603.8 billion, and based on average quarterly issuance of $201 billion, it looks like the hoped for $1.0 trillion issuance level is unlikely to be reached in 2023. Relative Performance: ESG Indices vs. Conventional Indices Sustainable mutual funds and ETFs recorded an average decline of 3.0% in October, reflecting investor concerns centered on Q3 corporate earnings and projected earnings, interest rates and the state of the economy. Stocks fell for the third consecutive month, with the large cap S&P 500 posting a drop of 2.1%. At the same time, bonds recorded their sixth consecutive monthly decline, giving up almost 1.6% based on the Bloomberg US Aggregate Bond Index total return results. 10-year treasury yields briefly touched 5% mid-month before settling at 4.88% on October 31st. Against this backdrop, four of six selected equity and bond MSCI ESG Leaders indices either outperformed or matched their conventional counterparts. October’s results displayed a clean split between the relative performance of foreign and domestic indices as the three selected foreign ESG benchmarks outperformed their conventional counterparts while the two domestic ESG indices lagged. At the same time, the Bloomberg MSCI US Aggregate ESG Focus Index matched its conventional counterpart. Over the trailing 12-months, five of the six MSCI ESG Leaders indices outperformed their conventional counterparts. Sources: Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis.

Read More

Sustainable Investing Monitor-October 2023

The Bottom Line: Assets attributable to sustainable mutual funds and ETFs declined to $315.6 billion in September, during which time performance and fund launches lagged. Net Assets: Sustainable Mutual Funds and ETFs New Sustainable Fund Launches Sustainable assets under management attributable to mutual funds and ETFs declined to $331.7 billion, for a month-over-month drop of $16.1 billion, or 6.9% of assets. A back of the envelope calculation indicates that outflows accounted for $2.3 billion in September. On a year-to-date basis, sustainable fund assets are still up $21.9 billion. Mutual fund assets dropped by $10.5 billion in September, or 4.5% while ETFs, which account for 30% of sustainable fund assets, gave up $5.6 billion or 7% of assets. New Sustainable Fund Launches One new sustainable investment fund was listed in September, consisting of an emerging markets ETF launched by Matthews International Capital Management, LLC, versus seven funds in September 2022. Y-T-D, fund launches reached 64 versus 74 listed in 2022. The drop off impacted ETFs as well as mutual funds, with 4 fewer ETFs listed and 6 fewer mutual funds. Green, Social and Sustainability Bonds Issuance Green, social, and sustainability bond issuance data covering Q3 2023 have not been finalized yet. But on another front, Climate Bond Initiative (www.climatebonds.net) released a report in September indicating that a sample of 50 non-sovereign green bonds out of 106 bonds issued during the first half of 2023, 16 bonds or 32% achieved a greenium by pricing inside their own secondary market yield curves. Relative Performance: ESG Indices vs. Conventional Indices Sustainable mutual funds and ETFs recorded an average decline of 4.15% in September, as both stocks and bonds moved lower as concerns among investors regarding economic growth, inflation and higher for longer interest rates gained momentum. The S&P 500 gave up 4.9% in September and the Bloomberg US Aggregate Bond Index posted a 2.54% drop. Against this backdrop and for the second month in a row, four of six domestic and foreign ESG equity securities market indices underperformed their conventional counterparts. US intermediate investment grade bonds were even while the MSCI USA Small Cap ESG Leaders Index outperformed in September. Four of six ESG indices and three of six indices underperformed their conventional counterparts since the start of the year and over the trailing 12-month interval, respectively. Sources: Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis

Read More

Sustainable Investing Monitor-September 2023

The Bottom Line: Sustainable funds' net assets benefited from positive flows, new fund launches held up relative to 2022 while ESG fund indices lagged again.[ihc-hide-content ihc_mb_type="show" ihc_mb_who="reg" ihc_mb_template="4" ] New Sustainable Fund Launches One new sustainable ETF was listed in August versus zero mutual fund launches, excluding additional share classes. The number of fund launches in August were below the monthly average recorded so far this year, but tracking ahead of new fund listings year-to-date by one fund at 63 launches relative to 62 launches in 2022. Net Assets: Sustainable Mutual Funds and ETFs Combined sustainable assets under management for mutual funds and ETFs declined by $6.3 billion in August, ending the month at $331.7 billion. That said, a back of the envelope calculation indicates that an estimated drop of $8.7 billion was attributed to the decline posted by capital markets and positive cash flows of $2.4 billion offset some of that decline. ETFs gave up $2.7 billion in net assets, or 2.7% while mutual funds gave up $3.6 billion in net assets, or 1.5%. Green, Social and Sustainability Bonds Issuance Green, social, and sustainability bond issuance reached $237 billion in Q2 2023, versus $224 in Q1, to close the first half of the year at $461 billion, per SIFMA. Global issuance could reach $1 trillion this year but through Q2 will still represent only about 4.0% of global long-term bond issuance. US issuance, at $34 billion, accounts for 14% of global issuance. While up relative to Q1, this level is below Q3 2021. Relative Performance: ESG Indices vs. Conventional Indices Sustainable mutual funds and ETFs posted an average decline of 2.58% in August, as both stocks and bonds edged lower. The S&P 500 gave up 1.59% in August and the Bloomberg US Aggregate Bond Index dropped 64 basis points, as investors started to contemplate the potential for higher interest rates over a longer time period in the light of economic strength fed by consumer and government spending. Energy was the only sector to post positive results in August and is up sharply over the trailing three months. Against this backdrop, four of six domestic and foreign conventional equity securities market indices outperformed ESG indices. US intermediate investment grade bonds were even while the MSCI USA ESG Leaders Index outperformed in August and the trailing 3-months, Y-T-D and 12-months. Sources: Morningstar Direct, Bloomberg, MSCI and Sustainable Research and Analysis

Read More

Sustainable Investing Monitor-July 2023

The Bottom Line: New sustainable fund listings ticked up as well as green and social bonds and fund net assets while relative performance results lagged. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="reg,3,4,5" ihc_mb_template="4" ] The Bottom Line: New sustainable fund listings ticked up as did green and social bonds as well as net assets while relative performance results lagged. New Fund Launches The number of new sustainable fund launches, including mutual funds and ETFs in the first six months of 2023 reached 59, exceeding the 40 funds launched last year, or an increase of 48%. These included 35 new mutual funds and 24 ETFs. Net Assets: Mutual Funds and ETFs Sustainable fund assets added $10.3 billion, to end June with $320.6 billion, the highest level reached so far this year. A back of the envelope calculation based on the 3.99% average June gain realized by all sustainable funds combined, suggests that overall cash inflows for the month were positive. Green and Social Bonds Issuance Quarterly issuance in the first quarter of green, social, sustainability and sustainability-linked bonds bounced back, increasing 49% compared to the fourth quarter 2022 and 6% compared to the first quarter of 2022, led by supernational institutions and the public sector of advanced markets. Relative Performance: ESG vs. Conventional Indices Sustainable mutual funds and ETFs, across all asset classes and fund categories, gained an average of 3.99% in June. At the same time, ESG-equity oriented securities market indices tracked by MSCI lagged behind their conventional counterparts. One exception is the Bloomberg Barclays MSCI US Aggregate ESG Focused Index that performed in line with its conventional counterpart. [/ihc-hide-content] Sources: Morningstar Direct, Bloomberg and Sustainable Research and Analysis

Read More

Sustainable Investing Monitor-August 2023

The Bottom Line: Relative performance results lagged again this month, as did fund formations and quarterly sustainable bond issuances, but sustainable mutual funds gained assets. New Fund Launches The number of new sustainable fund launches, including mutual funds and ETFs in the first seven months of 2023 reached 62, identical to the total number of launches in 2022. Three new ETFs were listed in July, versus 1 in July 2022. Net Assets: Mutual Funds and ETFs Sustainable mutual funds and ETFs added $17.4 billion in July, registering a second consecutive monthly gain, to end the month at a high point for the year at $338.0 billion in net assets. Based on the average overall total return gain of 2.22% in July (an average of 3.07% registered by ETFs and 2.07% posted by mutual funds) recorded by 1,593 sustainable mutual funds as well as ETFs, a crude estimate indicates that net cash flows for the month were positive at $9.9 billion. Mutual funds added around $10.2 billion while ETFs experienced a narrow $0.3 billion decline. Green and Social Bonds Issuance Green, social, sustainability and sustainability-linked bond issuance reached $283.3 billion in Q2 2023, versus $291 in Q1, to close the first half of the year at $574.3 billion. This represents a narrow decline of $7.7 billion, or 3%. Relative Performance: ESG vs. Conventional Indices Sustainable mutual funds and ETFs, across all asset classes and fund categories, gained an average of 2.22% in July while the S&P 500 gained 3.21% and the Bloomberg US Aggregate Bond Index gave up -.07%. As was the case last month, four of five ESG-equity oriented securities market indices tracked by MSCI lagged their conventional counterparts. The two exceptions, again this month, are the MSCI USA ESG Leaders Index and the Bloomberg Barclays MSCI US Aggregate ESG Focused Index that outperformed by 2 basis points or performed in line with its conventional counterpart index. Sources: Morningstar Direct, Bloomberg and Sustainable Research and Analysis

Read More

Sustainable Funds Monitor: September 2020

The Bottom Line: After twelve consecutive monthly increases in AUM, sustainable funds and ETFs took a breather to end Q3 with $2,814.5 billion in assets.

Read More

Sustainable Funds Monitor: August 2020

The Bottom Line: Sustainable mutual funds and ETFs ended August at $2,856.9 billion and are on a trajectory to exceed $3 trillion within several months.

Read More

Sustainable Funds Monitor: July 2020

The Bottom Line: Sustainable mutual funds and ETFs regained momentum in July, adding $153.2 billion and recording an 11th monthly consecutive high of $2,752.4 billion.

Read More

Sustainable Funds Monitor-June 2020

The Bottom Line: Sustainable mutual funds and ETFs took a breather in June, adding just $23.4 billion but reaching another new high of $2,599.2 billion.

Read More

Sustainable Funds Monitor: May 2020

The Bottom Line: Sustainable mutual funds and ETFs continue their streak of nine consecutive monthly gains, reaching $2.6 trillion of assets under management in May.

Read More

Sustainable Funds Monitor: April 2020

The Bottom Line: Sustainable mutual funds and ETFs reach another all-time high at the end of April with almost $2.5 trillion in assets under management.

Read More

Sustainable Funds Monitor: March 2020

The Bottom Line: During one of the most volatile months in stock market history, sustainable funds assets in March 2020 pierced the $2 trillion level.

Read More

Sustainable Funds Monitor: February 2020

The Bottom Line: Notwithstanding a severe market downturn at the end of February, sustainable MFs and ETFs added $4.8 billion to end at $1.871 trillion. The Sustainable Funds Monitor 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. FEBRUARY HIGHILIGHT: Notwithstanding a severe market downturn at the end of February that led to an S&P 500 decline of -8.23% and a Bloomberg Barclays US Aggregate Bond Index increase of 1.8% as investors shifted to bonds for safety, sustainable mutual funds and ETFs added $4.8 billion, the smallest 0.3% increase since the start of 2019, to close the month at yet another new high of $1.871 trillion.[ihc-hide-content ihc_mb_type="show" ihc_mb_who="reg" ihc_mb_template="4" ]

Read More

Sustainable Funds Monitor: January 2020

The Sustainable Funds Monitor 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. JANUARY HIGHLIGHT: Assets reach new all-time high of $1.87 trillion due to re-brandings that offset fund outflows (-$59.2 billion) and negative market movement ($-5.01 billion).

Read More

Sustainable Funds Monitor: December 2019

The Sustainable Funds Monitor 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. DECEMBER HIGHLIGHT: Assets reach new all-time high of $1.6 trillion. [ihc-hide-content ihc_mb_type="show" ihc_mb_who="reg" ihc_mb_template="4" ]

Read More

Go Back