Government bonds from countries that score high on the United Nations Sustainable Development Goals have outperformed the global market-weighted bond index over the past three years.
Active management in government bonds began a comeback in 2022, when the “zero interest rate era” ended and central banks started to scale back their market dominance.
This shift proved favorable for the Aegon Global Sustainable Sovereign Bond Fund, launched in late 2021. The actively managed Article 9 fund, with assets of about 125 million euro, has outperformed its benchmark, the ICE BofA Global Government Bond Index, every year so far. This year as well, through August 31: net 1.73 percent year to date versus 0.90 percent for the benchmark. In 2023, the outperformance before management fees was 2.6 percent, and the year after 0.77 percent.
Where does the fund generate its alpha? Gerard Moerman, who became head of liquid investments at Aegon Asset Management this summer, says that in 2025 it is mainly about country risk and curve risk. “Within countries, we are significantly underweight Japan, while overweight in peripheral countries such as Italy and Spain. Regarding the curve, we positioned for steepening, and that has indeed taken place. We expect this trend to continue for a while longer.”
SDGs
The country selection is distinctive: the portfolio consists only of bonds from countries that score well on sustainability criteria. For this, Aegon uses a dataset from the Bertelsmann Foundation, which ranks countries by how far they have progressed toward achieving the 17 United Nations Sustainable Development Goals (SDGs). In that ranking, Finland holds the top spot, followed by Sweden and Denmark, with Germany and France close behind. Belgium is in 18th place, the Netherlands in 23rd, while Luxembourg appears only at 39th. Still ahead of the United States, which is ranked 44th this year.
“We further refine these data by distinguishing countries according to income group, as defined by the World Bank,” Moerman explains. “On some goals, you cannot really speak of a level playing field. For developed economies, it is no real achievement to score on an objective such as ‘clean water and sanitation.’ Therefore, we assign different weights to the goals depending on income category.”
For example, SDG6 (clean water) counts for less in Western European countries, while goals such as SDG10 (reduced inequalities) and SDG12 (responsible consumption and production) carry greater weight. The result is an adjusted ranking. Moerman: “This leaves us with about 30 countries that score high enough on the SDGs to form our universe and the basis for portfolio management. We redo this exercise every year, because many countries regularly shift their policies on sustainability goals.”
France
In 2025, the United States dropped out of the universe, mainly due to treaties and agreements terminated by the Trump administration. Australia has long been excluded, partly because of its very low score on climate action (SDG13). “We were already cautious with the United States, but now we no longer hold any Treasuries. The dollar does, however, have a heavy weight in the benchmark, which we offset by purchasing dollar-denominated bonds from other countries and supranationals.”
The government bonds of the 30 countries in the universe thus provide the playing field for return objectives. Moerman: “That is the work of the portfolio managers: how strong is the economy, what is the central bank doing, how high are interest rates, how steep is the curve?” The answers to those questions determine the asset allocation, which currently includes, in addition to supranational institutions, significant allocations of about 6 to 8 percent each in France, Italy, and Canada.
France? “Of course, the country is in the spotlight regarding debt sustainability and the political situation,” says Moerman, “but the French have been performing strongly for years in terms of sustainability policy, for example with their focus on equality, community spirit, and renewable energy.”
At present, the Aegon fund also invests 3 to 5 percent per country in government bonds from Chile, the United Kingdom, Spain, Uruguay, and Germany. “It has been a very challenging period for government bonds, but with active management, more investors see opportunities again. For us, this is a good example of how sustainability and financial return can go hand in hand.”