It’s not easy being green. Not as a bond issuer, a fixed-income fund manager or as an individual investor. 

Sure, there are Green Bond Principles for governments and companies, but they’re voluntary guidelines, which helps explain why just $271 billion of the $465 billion in global “sustainable debt” issued last year was defined as green, according to Bloomberg New Energy Finance data. For mutual funds, the Bloomberg Barclays MSCI Global Green Bond Index is one of the best approximations of the market, but it has just 457 members, less than one-fourth the number in the U.S. high-yield index, making it difficult to track and heavily weighted to a few European countries.

To top it off, investors interested in climate-related investing have to wrap their heads around socially responsible investing, or SRI, and how it differs from ESG, which attempts to identify leaders in environmental, social and governance policies. My Bloomberg Opinion colleague Nir Kaissar recently wrote about the two camps. Suffice to say, it can all be enough for the average investor to give up and just go with the highest-returning option, values be damned.

Perhaps that’s why many of the biggest fixed-income funds that are considered some form of “green”choose to simplify matters. Among the five with more than $1 billion of assets, four consider the Bloomberg Barclays U.S. Aggregate Bond Index (or a subset of it) as their benchmark. That pits them against competitors like the $200 billion Vanguard Total Bond Market Index Fund, the $13.2 billion Guggenheim Total Return Bond Fund and the $13 billion DoubleLine Core Fixed Income Fund, among more than 100 others.

“The main misperception of this space is you sacrifice performance,” said Stephen Liberatore, head of Nuveen’s responsible fixed-income strategy team and manager of the $4.7 billion TIAA-CREF Social Choice Bond Fund, the largest such portfolio as measured by Morningstar Inc. Showing that an ESG fund can beat the aggregate index and “a true core fixed-income peer group, not an ESG impact peer group, is what changes people’s minds over time.”

Pacific Investment Management Co.’s Total Return ESG Fund, with $1.5 billion in assets, is handled in much the same way. “There’s no reason for there to be a difference in macro-risk factors in the ESG version” compared with the traditional total return option, said Scott Mather, chief investment officer of U.S. core strategies.

“What’s different is how we go about composing the line items, how we populate the portfolio with individual bonds.”

What was evident after speaking with these fund managers is that the investing world is rushing to cater to a population of investors that I’d call the “green-curious.” That is to say, people who want to feel as if they’re making a difference with their money but aren’t willing to accept significantly higher volatility or fees to do so.

Consider, for example, that some of the biggest single holdings in ESG fixed-income funds are U.S. Treasuries. To green-bond purists, that decision would seem questionable at best, given that President Donald Trump pulled the U.S. out of the Paris accord on climate change, among other things. Debt issued by countries from France to Chile to Korea has been earmarked specifically for sustainable projects. Treasuries, by contrast, are broadly sold to finance the nation’s budget deficit, projected to top $1 trillion this fiscal year.

The counterargument is that without some exposure to the biggest and most-liquid bond market in the world, it would be tougher to track the aggregate benchmark and raise cash when needed. Plus, so far in 2020, Treasuries have been a winner: The Bloomberg Barclays U.S. Treasury Index gained 2.4% in January, beating both investment-grade and high-yield corporate bonds as well as the S&P 500 Index.

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