The First Green Bond ETF for Sustainable Investment Projects

Socially responsible equity themes have grown in popularity in recent years as investors align values with their investment objectives. VanEck has now launched the first green bond-related exchange traded fund to help investors fill out their fixed-income portfolios as well.

On Monday, VanEck rolled out the VanEck Vectors Green Bond ETF (NYSEArca: GRNB). GRNB has a 0.40% expense ratio.

Green bonds are debt securities issued to finance projects that promote climate change mitigation or adaptation or other environmental sustainability purposes. The new breed of green bonds gained momentum in global market ever since the European Investment Bank issued the first green bond in 2007, with $81 billion in green bonds issued in 2016 and an expected $150 billion to be issued in 2017, according to a note.

“Until now investors have had limited options for efficiently accessing ‘green’ fixed income exposure,” Ed Lopez, Head of ETF Product Management and Marketing with VanEck, said in a note. “We believe there’s demand for green bonds from ESG-focused investors, but there may be appeal to traditional fixed income investors as well. Green bonds are simply conventional bonds with an environmentally friendly use of proceeds. So, global bond investors can make an allocation to green bonds without significantly altering the risk and return profile of their portfolio.”

According to GRNB’s prospectus, Green bonds are debt whose “proceeds are used principally for climate change mitigation, climate adaptation or other environmentally beneficial projects, such as, but not limited to, the development of clean, sustainable or renewable energy sources, commercial and industrial energy efficiency, or conservation of natural resources.”

GRNB tries to reflect the performance of the S&P Green Bond Select Index, which is comprised of debt issued for qualified “green” purposes.

To be included in the underlying index, the issuer of the bond must indicate the bond’s “green” label and the rationale behind it, such as the intended use of proceeds, according to the prospectus. As an additional filter, the bond must be designated “green” by Climate Bonds Initiative, an international not-for profit working to mobilize the bond market for climate change solutions.

The index is also value-weighted and includes both investment- and speculative-grade debt. Credit quality breakdown includes AAA 31.2%, AA 16.7%, A 28.6%, BBB 14.4% and non-rated 9.1%.

Country weights include France 23.6%, Supra-national 20.7%, Germany 12.7%, U.S. 10.2%, China 9.9%, Netherlands 6.7%, U.K. 2.6%, Spain 2.1%, Italy 2.1%, Brazil 2.0%, South Korea 2.0%, Mexico 2.0%, Canada 1.8% and Australia 1.5%.

Sector weights include government 37.0%, financial 29.1%, utilities 20.4%, industrial 5.9%, basic materials 2.0%, tech 2.0%, consumer non cyclical 2.0%.

The fund’s underlying index shows an effective duration of 6.40 years and a yield to worst of 1.58%.

For more information on new fund products, visit our new ETFs category.

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