Green bonds also often feature lower correlations to other fixed income assets, a possible advantage for income investors at a time of diverging monetary policies throughout much of the developed world.
For instance, the VanEck Vectors Green Bond ETF (NYSEArca:GRNB), the only bond dedicated to the socially responsible investment theme, only includes debt issuer that indicate the bond’s “green” label and the rationale behind it, such as the intended use of proceeds. 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.
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. 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.