ESG Flows Below Levels Immediately Before Covid, Yet Still Doing Better Than Broader Market: Morgan Stanley

Unedited Analysis Summary (Mathew Carr added some emphasis)

ESG funds are underperforming, though, Morgan Stanley found.

Morgan Stanley note from april 21: Key developments during 1Q 2022 include:

1. Fund flows & AUM. ESG AUM currently stands at $3.7trn (up +12% vs. 1Q21). In 1Q22, ESG net inflows totalled $75bn, down 62% vs. 1Q21 net inflows of $198bn. That said, ESG flows are still above the 12 month pre-Covid level, whilst broader market flows are below.

2. ESG performance. Major global MSCI ESG indices broadly underperformed mainstream indices in 1Q22. Most ESG funds have also underperformed over the past quarter (-1.5%), but fixed income funds outperformed by +0.5%.

3. ESG bond issuance. In 1Q22, $224bn in ESG-labeled debt was issued globally,-22% YoY. SSA (Sovereigns, Supranational and Agencies) issuance fell 32% YoY to $13bn; corporate issuance declined 6% to $95bn YoY. Social bond issuance in particular has declined 64% YoY with most pandemic-programs finished. We estimate that there is ~$2.8trn in ESG-labeled debt currently outstanding and expect the pace of issuance in 2022 to remain strong, particularly for green and sustainability-linked bonds.

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