Green bonds grow amid rising interest in sustainability: Fitch

Global green bond fund assets rose 80% over the past year, at the same time as credit risk is rising, says Fitch Ratings.

In a new report, the rating agency said that assets under management (AUM) in green bond funds — mutual funds that primarily invest in green bonds — increased 80% over the past year to €22 billion at the end of the first quarter.

Over the same period, bond funds’ AUM was up about 4%.

The far faster growth in green bond funds’ AUM reflects the “increasing investor focus on sustainability,” Fitch said.

While green bond funds still represent a tiny share of the overall bond fund market, they are growing rapidly, the rating agency noted. “The growth in the number of funds has been accompanied by an increasing diversity of funds,” Fitch also reported, with funds increasingly diversifying into social or sustainability-linked bonds, too.

Alongside the growth in the segment, some funds have started to take on more credit risk, Fitch said, noting that its rating risk metrics for the largest funds rose in the first quarter, “indicating modestly higher credit risk.”

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.