The ESG investing space had its ups and downs in 2024. Sustainable assets saw a 7% increase in AUM to $3.2 billion.

While the year has been challenging for ESG equity funds, particularly with underperformance in the first half, JPMorgan analysts are looking to 2025 with optimism.

Among the most promising picks are bonds from major renewable energy players. These bonds are poised to benefit from tax credits, policy shifts, and growing demand for clean energy:

• NextEra Energy Inc (NYSE:NEE) – $5.25% 03/15/34 Bond (Z-spread 132bp): As one of the largest developers of renewable energy in the US, NextEra Energy continues to be a top pick for investors focused on ESG. The company remains exposed to fluctuations in renewable tax credits and financing, but with strong customer demand and state carbon targets, its long-term prospects are solid. This bond offers a potential upside as NextEra continues to expand its solar and wind portfolios.
• The AES Corp (NYSE:AES) – $2.45% 01/15/31 Green Bond (Z-spread 168bp): AES is another key player in the renewable energy space, benefiting from a large backlog of utility-scale projects. The company is positioned to capitalize on renewable PTCs, ITCs, and tax equity financing. With data center offtakers less sensitive to price hikes and interest rates, AES is well-positioned to navigate potential policy changes and remain a solid investment for ESG-focused bondholders.
• Constellation Energy Corp (NASDAQ:CEG) – $5.75% 03/15/54 Green Bond (Z-spread 190bp): As a leader in nuclear energy, Constellation Energy is supported by strong power fundamentals and firm nuclear sentiment across both sides of the legislature. With continued demand for reliable power and a growing market for data centers, Constellation is poised to benefit from its nuclear and renewable energy mix. This bond stands out as an attractive option for ESG investors looking for stable returns in the energy sector.

ESG Bonds Set To Shine In 2025

JPMorgan's ESG bond picks for 2025 focus on companies in the renewable energy and utilities sectors. These bonds are positioned to benefit from strong macroeconomic support and evolving policies favoring clean energy.

With growing demand for green energy and stable regulatory environments, bonds from NextEra, AES, and Constellation Energy are likely to be top picks for ESG-focused investors looking for solid returns in the coming year.

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