BNP Paribas Asset Management has warned that investors have been “slow to adopt green bond funds at scale”, with flows into Sustainable Finance Disclosure Regulation (SFDR) Article 9 green bond mutual funds declining in recent years.

In a new report published with Investors for Purpose, the UK manager also said there was “no appreciable growth” in AUM for its UK-domiciled green bond fund, despite adopting a Sustainability Impact label under the Sustainability Disclosure Requirements (SDR).

The £73 million ($99 million; €85 million) AXA Green Short Duration Bond Fund applied the UK’s Sustainability Impact label in late July last year, but according to Morningstar data net monthly flows since then have ranged between £2 million in outflows and £3 million in inflows.

The best month in the past three years was February 2025, when it picked up £12.3 million in net flows.

“At a time when fixed income has become increasingly attractive, and climate and nature financing needs seem to be larger than ever, are we missing out on a prime impact and investment opportunity to allocate to green bonds?” said BNP Paribas AM, which has since acquired AXA Investment Managers.

The firm also noted that an unnamed global green bonds index has achieved comparable performance with the Bloomberg Global Aggregate index, and significantly outperformed the ICE BofA Global Broad Market index with lower volatility than both over the past three years.

Inconsistent opinions

Investors for Purpose interviewed UK institutional investors about the role of green bonds in their portfolio, finding inconsistent opinions on the relative returns and concerns over the complexity of the asset class.

Three out of five raised concerns around performance, while market constraints, difficulty measuring impact outcomes and greenwashing and credibility risks were also brought up.

One asset owner said these assets “have tended to underperform in a highly competitive market”, while another warned that “understanding additionality takes resources, especially where transparency is weaker”.

“Some second-party opinions are more useful than others,” the second asset owner added. “Greater consistency would help.”

Similarly, the relative narrowness of the labelled bond universe – more heavily concentrated in financials, utilities and European issuers – also came up.

“Sector and regional concentration remains a challenge,” one asset owner warned. “Green bonds work better within broader mandates, because it is difficult to meet sustainability and investment objectives in standalone sleeves.”