Sustainable assets have had a challenging few years, as investor enthusiasm for the asset class waned after a period of explosive growth.
Between 2020 and 2022, ESG investing arguably reached ‘peak hype’ as a broad spectrum of sustainable funds were launched and it became a hot topic within the industry. However, in recent years, this has all started to unwind.
According to the most recent data from Calastone, ESG-focused funds recorded net outflows of nearly £4.8bn in 2023 and a further £3.5bn in 2025. Data from the Investment Association suggests the pullback from sustainable funds has persisted this year, with responsible funds shedding money each month in 2026.
However, for Steve Williams, head of fixed income at Amova Asset Management, investors risk letting this backlash cause them to miss out on exciting sustainable opportunities, particularly in areas like green bonds.
The US backlash “towards really anything labelled ESG” can be seen as valid, he explained, but is mostly a problem in the equity space and has been much less of a problem in the fixed income universe, he argued.
This is reflected in data from FE fundinfo, which showed the ICE BofA Green Bond index is up 7.7% over the past three years. By comparison, a common global bond index, the Bloomberg Global Aggregate Bond index, was up just 3.1% over the same period.
See also: Sustainable shoots: The rise of green bonds in the US
Part of this argument for the relatively good performance of green bonds is that the investment impact of the backlash against ESG has been slightly overblown, the Amova manager continued.
For example, despite the US pushback, Texas has around 100 gigawatts of solar and wind storage capacity, putting it roughly level with Germany in terms of investment on a “per capita basis”.
“In somewhere like Germany, it’s a matter of climate policy, but in Texas, it’s just because it’s a sound investment opportunity.
“Rather than earning the Ire of the White House, I think a lot of companies are just avoiding the label altogether,” he said. “But I think the money’s still getting invested into ESG; it’s just not being financed by a labelled issue.”
Williams also said the green bond universe is currently well positioned, with compelling tailwinds due to market composition compared to the wider bond index.
“About two thirds of the green bond market is euro-focused, whereas around two-thirds of the global fixed income market is US dollar focused,” he explained. “In that sense, this asset class gives you an almost currency play, because any issue with, say, dollar debasement will hit the global aggregate much harder relatively.”
Similarly, the universe maintains relatively low exposure to currently challenged areas such as sovereign bonds, because the US Treasury is not issuing any green-labelled sovereign bonds at present, according to the Amova manager.
This means investors in this asset class may be able to avoid duration risk, or concerns about the government’s high debt-to-GDP ratio, which are currently plaguing conventional bond markets, he said.
See also: Geopolitics and government debt top wealth manager worry list
Similarly, he also identified the rise of hyperscalers’ debt as an issue in more conventional bond markets that green bonds can mostly bypass.
By August this year, Alphabet, Meta, Amazon and Microsoft had already committed $2.4trn in AI-related spending, with more expected to come.
“While the hyperscalers can certainly fund a significant portion through cashflow, they’re going to have to tap the debt market, and much of that will probably be done in the conventional space.”
Williams noted that so far this year, hyperscalers have already issued about $1.6trn in debt, but this could spike to more than $7trn, according to research from Goldman Sachs. In fact, earlier this year, it noted around $1trn of that may not be on the books yet.
“We estimate the conventional bond market is going to get heavily concentrated in hyperscalers debt,” Williams continued. “You just don’t have that in the green bond space.”
This is mostly because data centres and AI are generally not perceived as green investments, due to their energy and environmental requirements, he said.
“I just think it [green bonds] is becoming an interesting way to differentiate yourself, from a credit standpoint.
“It seems prudent to us to look for undifferentiated, uncorrelated returns at this point,” he said. “If you have a broad, global fixed income mandate, this is something you should certainly take a look at as a more differentiated, focused investment.”
See also: Artemis’s Snowden: Should bond investors avoid the hyperscalers?
