Environmental, social, and governance (ESG) investing has been a force to be reckoned with in the capital markets the last few years, and it will continue to be one, especially with its growing presence in the bond markets.
From a sheer numbers perspective, this could translate into record bond issuance by the year 2025. According to research by Pictet AM and the Institute for International Finance (IIF), issuance could reach $4.5 trillion, or over three times the issuance during 2021.
“By 2025, there will be few global investors who don’t have a significant allocation to ESG and green investments. And if you look further ahead to 2050—when governments and companies around the world will be seeking to deliver on net-zero commitments—we will have effectively greened global bond markets, transforming our environment for the better,” said Sonja Gibbs, managing director and head of sustainable finance at IIF.
A Corporate Bond Option Mixed With ESG
Investors looking to add a dose of ESG along with the yield potential of corporate bonds can look at the Vanguard ESG U.S. Corporate Bond ETF (VCEB). Per its fund description, VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index, which excludes bonds with maturities of one year or less and with less than $750 million outstanding and is screened for certain ESG criteria by the index provider, which is independent of Vanguard.
VCEB highlights:
- Provides debt issues screened for certain ESG criteria.
- Specifically excludes bonds of companies that the index sponsor determines are involved in and/or derive threshold amounts of revenue from certain activities or business segments related to adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.
- Excludes bonds of companies that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG controversies assessment framework, as well as firms that fail to have at least one woman on their boards.
- Has a low expense ratio of 0.12% and a 30-day SEC yield of 2.69%
For more news, information, and strategy, visit the Fixed Income Channel.