There is an urge among investors to be more responsible towards the environment, and this particular pulse has popularized “Impact Investing”. This area of investment began to swell over the last few years, particularly during the previous 12 months.
Investors are keen to capitalize on companies that demonstrate environment winning strategies, and the so-called green bonds are poised to perform enormously well this year. During the World Economic Summit in Davos, impact investing was the most popular theme, and it’s likely we are going to see a significant inflow of funds.
The Bloomberg Barclays U.S. Green bond index is primarily focused on corporate green bonds and experienced a more than 12% surge during the past 12 months. Of course, the performance of this index is much inferior if you compare it to the S&P 500—that index recorded nearly a 16% gain over the same period.
Remember, the lag in the performance by the Barclays U.S. Green fund index is partial because the green debt market is still too small for large money managers, and during the risk-on cycle, these types of asset classes underperform.