Bond investors who are seeking income opportunities along with generating a positive effect on the environment can now align their investment interests with their personal views through a green bond exchange traded fund.
“Green bonds help investors fulfill their fixed income investment objectives and, at the same time, make a positive impact on the environment (notably by financing projects that help to address climate change),” William Sokol, Product Manager of ETFs at VanEck, said in a note. “Hence: Income with impact. In simple terms, green bonds can achieve these dual goals because they are much like plain vanilla conventional bonds and have the added benefit of an environmentally friendly purpose.
The VanEck Vectors Green Bond ETF (NYSEArca: GRNB), the first green bond-related ETF to come to market, tries to reflect the performance of the S&P Green Bond Select Index, which is comprised of debt issued for qualified “green” purposes.
Green bonds include debt securities 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.
Investors can evaluate the green bond segment’s impact through the standardized Green Bond Principles, which help promote the integrity and development of the green bond market, Sokol said.
Specifically, the principles include use of proceeds, which should fund projects with clear environmental benefits with clear disclosures; project evaluation and selection, which outlines a process to determine project eligibility and sustainability objectives; management of proceeds, which should be tracked through a formal internal process; and reporting, or annual disclosure of the use of proceeds and qualitative and quantitative performance measures.
Sokol points to transparent disclosures as a key component in categorizing green bonds. For instance, Apple recently published annual reports on its green bond issuance where the company outlines how it invested its green bond proceeds so far, including green buildings, renewable energy sources to power data centers and robotic technology.
Bank of America’s green bond helped fund energy efficiency projects in several small towns, residential solar systems and wind power facilities.
Georgia Power Company was the first U.S. electric utility to issue a green bond to finance several solar projects in Georgia.
Morgan Stanley’s green bonds proceeds finance several wind farms as well as LED lighting upgrades.
Consequently, as more industries adopt and issue green bonds to finance environmentally friendly projects, green debt securities could become a growing part of a diversified investment portfolio.
“As the growth of the market progresses, we expect green bonds to make up an increasingly large share of the overall global debt market, and consequently, within investors’ core fixed income portfolios,” Sokol said.
For more information on fixed-income assets, visit our bond ETFs category.