The latest Bank of America Global Research report highlights wins and issues within the ESG market, with ESG bonds in Europe an the US, being standout as benefitting from recent market movements. Key points are included below.
$4.3bn of ESG bond fund inflows
ESG bond funds brought in an inflow of $4.3bn in January 2025, having finished 2024 with $48bn of inflows. The month saw a recovery from a dip in inflows towards the end of 2024. Overall, 6% of bond inflows have gone into ESG funds YTD. AUM in global ESG bond funds is now $708bn and 6.1% of total bond fund AUM, according to data from fund analyser EPFR. 12.6% of bond funds are now ESG-related funds.
Europe: still the biggest driver of ESG inflows
Western European ESG bond funds saw an inflow of $2.5bn in Jan 2025, remaining the region with the strongest inflows. Cumulative inflows to ESG bond funds in Western Europe are now $149bn. AUM reached $395bn, down by $16bn from its peak in Sep 2024. The number of ESG bond funds is now 607 and accounts for over 22% of bond funds. 24% of European YTD bond fund inflows has been to ESG funds.
US: inflow momentum continues in 2025
US ESG bond funds recorded their 14th consecutive monthly inflows of $0.9bn in Jan 2025. AUM rose to $116bn, up by 16% YoY. Cumulative inflows to ESG bond funds in the US are $64bn. ESG inflows accounted for 2% of total inflows YTD. The number of ESG funds is now 222, accounting for 1.6% of AUM.
Emerging Market: third consecutive month of outflows
Outflows in EM ESG bond funds continued in 2025 as Jan outflow is at $331mn. Non-ESG funds did not fare well either with a tiny inflow of $73mn. AUM in EM ESG bond funds is now $36.5bn. The number of ESG funds in the region is now 143, which accounts for 6.4% of EM bond funds. AUM of ESG funds is around 5.5% of all funds.
Cross-region: strongest inflow in 8 months
Cross-region ESG bond funds recorded an inflow of $1.2bn, the highest since May 2024. AUM in cross-region ESG bond funds is now $156bn. Almost 20% of cross-region funds is ESG-related YTD. ESG funds are still 10% of all bond funds by AUM. Cross-region ESG inflows account for 16% of total bond fund inflows YTD in this category.
Real estate: how does sustainability contribute to returns?
The European real estate index returned 20.6% across 2023-2024 (after losing about that much in 2022). With spreads now back to 2021 levels, investors may prefer a more selective approach with greater differentiation among issuers.
BofA says its view is that sustainability is a factor to consider (in addition to credit fundamentals).
“Through our backtests for 2018-2024, we show that governance and energy intensity correlate with bond performance in real estate. Our view remains that in already tight markets, differentiation – picking the micro over the macro – is important.”
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