The rising popularity of ESG Fixed Income ETFs

ESG Fixed Income ETFs are increasingly gaining popularity. The emergence of ESG-focused financial products was caused by the negative impact of human activity on the environment, the ever-increasing social gap, and the rising awareness of the need for sustainable solutions. ESG is a broad term which is often used to encompass a variety of sustainable and socially responsible practices. Financial products with ESG in their “DNA” aim to encourage practices that have a positive environmental or social impact, or good corporate governance behaviors such as fair executive compensation. 

The boom of ESG Fixed Income ETFs

ESG products have gained traction over the years as a new range of socially responsible investors emerges to explore opportunities that can make a difference. The increased appeal of sustainable investing triggered a snowball effect that saw the launch of hundreds of ESG-stamped equity and fixed income products to cater to investors’ needs. 

ESG Fixed Income ETFs for instance, are items in high demand on the portfolio menu. Since 2016, ESG Fixed Income ETFs assets under management (AuM) have grown 17-fold. This year, investors took it to another level, injecting $24.1 billion of additional capital into these products, almost double compared to the previous year’s total of $12.9 billion (+87%). 

The growing popularity of this niche asset class piqued our curiosity and so we decided to look at the 5 most popular ESG Fixed Income ETFs among investors, measured by the trailing 3-month net inflows as of December 2021.

5 Most Popular ESG Fixed Income ETFs 

1. UBS ETF – Sustainable Development Bank Bonds UCITS ETF (MBDUA): $400 millions
2. iShares € Corporate Bond ESG UCITS ETF (SUOE): $352 millions
3. iShares Global Aggregate Bond ESG UCITS ETF (AEGE): $293 millions
4. iShares ESG U.S. Aggregate Bond ETF (EAGG): $243 millions
5. Xtrackers II ESG EUR Corporate Bond UCITS ETF (XB4F): $211 millions

1 - UBS ETF – Sustainable Development Bank Bonds UCITS ETF (MBDUA)

If you’re looking to support economic and social development in emerging countries, UBS’s Sustainable Development Bank Bonds UCITS ETF (MBDUA) is a good choice. The ETF is rated A by Conser on its sustainability and tracks the Solactive UBS Global Multilateral Development Bank Bond USD 25% Issuer Capped Total Return Index. The index aims to mirror the performance of USD-denominated bonds issued by development banks across the world. Development banks are entities that provide financing to enhance the economic development in developing countries.

2 - iShares € Corporate Bond ESG UCITS ETF (SUOE)

The iShares € Corporate Bond ESG UCITS ETF  offers an exposure to corporate bonds whose issuer are considered to have good ESG practices. It is rated B by Conser on its sustainability profile and aims to track the Bloomberg Barclays MSCI Euro Corporate Sustainable SRI Total Return Index. The index is engineered to reflect an exposure to investment-grade EUR-denominated bonds issued by companies. It only comprises bonds rated one of the top 4 levels by MSCI ESG ratings and exclude issuers involved in a set of sectors considered non-ethical such as controversial weapons, tobacco and alcohol.

3 - iShares Global Aggregate Bond ESG UCITS ETF (AEGE)

Investors who want a global fixed income ESG exposure should definitely look at  iShares Global Aggregate Bond ESG UCITS ETF. This ETF is rated A+ by Conser on its sustainability profile and tracks the Bloomberg MSCI Global Aggregate Sustainable and Green Bond SRI Index. It gives the investor an exposure to bonds issued by corporates, governments, government related entities and securitized instruments. Sectors considered unethical are excluded from the index and a best-in-class ESG approach is applied during the index construction process. This ETF is an easy way to gain exposure to the global bond market while supporting companies considered to have sustainable practices. 

4 - iShares ESG U.S. Aggregate Bond ETF (EAGG)

EAGG ETF is for investors who want exposure to the investment-grade ESG U.S. bond market. It is rated B+ by Conser on sustainability and tracks the Bloomberg Barclays MSCI US Aggregate ESG Focus Index. Bonds included in the index are issued by entities considered to have positive ESG practices. 

5 - Xtrackers II ESG EUR Corporate Bond UCITS ETF (XB4F)

The Xtrackers II ESG EUR Corporate Bond UCITS ETF is similar to the iShares € Corporate Bond ESG UCITS ETF. It tracks the Bloomberg MSCI Euro Corporate Sustainable and SRI Index which comprises bonds rated BBB or above by the MSCI ESG rating and exclude issuers involved in sectors considered as non-ethical. The ETF is rated B+ by Conser.

A well-diversified portfolio should always include a fixed income pocket to mitigate the risk of equities and other asset classes. The rising ESG offer for fixed income ETFs allows investor to easily gain exposure to specific market segment at low costs while keeping a consideration for ESG metrics.

Interested in ESG investing? Have a look at our ESG Investing platform.

Want to find more Fixed Income ETFs? Check out our ETF screener to get started.