Fixed Income Review 2024

How can values-aligned investors cut through the potential greenwashing of ‘Sustainable’, ‘Ethical’, ‘ESG’, and ‘Responsible’ funds and find genuine social and environmental impact in their public markets allocation?

2024 marks the fourth year of our annual Fixed Income Review (Review), assessing fund managers against our rigorous framework and highlighting funds implementing best-practice responsible investment strategies. Over those four years, the Reserve Bank of Australia (RBA) Cash Rate on which interest rates are referenced has moved from record lows to above the 30-year average. As performance has risen off the back of increasing interest rates, fixed-income funds (colloquially labelled ‘bond funds’) have experienced renewed interest and investment.

In the bond market, labelled bonds are those that promote environmental, social, and governance (ESG) outcomes. These can be generally defined as ‘green’, ‘social’, ‘sustainable’, ‘sustainability-linked’, and ‘transition’ bonds (collectively: GSS+ bonds).

Global labelled bond issuances continue to grow and constitute a material portion of the overall bond market. Since the first green bond in 2007, cumulative global labelled bond issuances exceeded $7 trillion in 2024. The vast majority of these issuances have taken place in recent years, with approximately $6.7 trillion in issuances since 2019, including $800 billion in H1 of 2024. Global labelled issuances are expected to surpass $1.5 trillion for the calendar year 2024, which could represent up to 14% of total bonds issued.

While Europe remains the majority issuer of labelled bonds, Asia-Pacific is considered a growth region and Australian issuances reached a record in H1 of 2024, including Australia’s first sovereign green bond of $7 billion issued by the Australian Office of Financial Management.

While public market equity investments are often more about alignment with values and in many cases simply seek to avoid exposures to harmful activities, fixed income strategies can go further than simply avoiding harm as the use of bond proceeds can finance specific sustainability projects and/or targets. Investing in primary issuances of labelled bonds, or funds that participate in them, can be classified as Contributing to Solutions as the investment capital is truly additional in financing new projects that generate positive social and environmental impact.

Now in its fourth year, our Fixed Income Review (Review) applies our proprietary Responsible Investment Matrix (RIM) to the growing universe of ‘responsibly positioned’ bond funds, to help investors to identify best-practice strategies and outcomes.

Our 2024 Shortlist highlights nine funds that we consider to be taking a best practice approach to responsible investment, while one additional fund remains on our Watchlist. Three of the Shortlisted funds receive a Portfolio Classification of Contribute to Solutions, indicating that the majority of capital in these funds is financing social or environmental outcomes with primary issuances – meeting the requirements of both impact and additionality to receive this classification.

Highlights and key insights from this year’s Review include:

• 31 funds assessed from 20 fund managers against our Responsible Investment Matrix (RIM)
• Over 4,000 underlying holdings of funds reviewed against our Impact Spectrum
• 9 Shortlist funds identified as implementing best-practice approaches to responsible investment 
• 3 funds receiving a Portfolio Classification of Contribute to Solutions, meeting strict requirements for both impact and additionality
• Average annualised financial returns responsible investment funds of 4.5% over a 1-year period, above the RBA Cash Rate (4.2%), and the average of traditional funds of (3.3%).

For the first time, we have made the Review publicly available (with Shortlist and Watchlist fund profiles redacted for clients only).

If you would like to download a copy of the report, please use the form below.

If you would like to learn more about our public markets research, access our Shortlist and Watchlist, or see your own portfolio measured against our RIM as part of a Portfolio Impact Assessment (PIA), we encourage you to get in touch with us by e-mail or through this website to start the conversation.