Environmental, social, and governance (ESG) concepts and scoring are making their way into the world of fixed income ETFs, but investors have an established option in the VanEck Vectors Green Bond ETF (NYSEArca: GRNB).
GRNB, the original ETF dedicated to green bonds, offers investors broad-based exposure to a small, but fast-growing corner of the bond market. For investors not familiar with this emerging fixed income segment, green debt can be issued by both companies and governments. It is exclusively used to fund environmentally friendly projects, including clean water enhancements, green buildings, and other renewable energy projects.
As demand for those concepts grow, so is issuance of green bonds themselves.
“The first green bond was issued in 2007 by the European Investment Bank. Green bonds were a tiny slice of the bond market for the next decade, with issuance mainly coming from government agencies and development banks. But since 2016, the market has seen a significant increase in issuance every year and from a wider variety of issuers, including sovereigns and corporations,” notes Morningstar analyst Jose Garcia-Zarate.
Geography Matters with GRNB
GRNB is reflective of the global nature of the green bond market, as the VanEck ETF features exposure to over 20 countries and a weight to the U.S. of less than 35%. The fund’s solid exposure to Europe is meaningful because that region is the largest when it comes to green bond issuance.
While seven emerging markets, including China, India, and Brazil, are represented in GRNB, developing economies are still minor players in the green bond space. That, however, is likely to change going forward as those countries look for new ways to fund important renewable energy ambitions.
“According to the Climate Bond Initiative, green bond issuance hit a record high of $290 billion in 2020 (a 246% increase from 2016) and is on track to hit $500 billion in 2021. This propelled the size of the green bond market to more than $1.2 trillion,” says Garcia-Zarate.
Last year, investors allocated $10 billion to globally-listed green bonds, more than double the $4.7 billion seen in 2019. That’s confirmation that this area is growing and that GRNB could pay off over the long-term for environmentally conscious bond investors.
GRNB is just over four years old and is flirting with $96 million in assets under management.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.