The universe of bonds with credible social, sustainability, sustainability-linked, and energy transition ties is growing at a rapid rate. “Green” designated bonds share this growth. New data from the Climate Bonds Initiative confirms this.
A recent report from Climate Bonds indicates that financing volumes across those bond segments reached a combined $4.2 trillion in the first half of 2023. Ongoing increases in adoption and issuance of such bonds could be longer-ranging catalysts for exchange traded funds such as the Calvert Ultra-Short Investment Grade ETF (CVSB).
CVSB isn’t a dedicated green bond ETF, but it is an actively managed fund with an environmental, social, and governance (ESG) directive. It affirms its relevance as an avenue for accessing ESG and sustainability fixed income segment growth.
CVSB Flexibility Matters
Regarding green bonds and fixed income assets with the social, sustainability, sustainability-linked, and energy transition labels, each are emerging segments of the broader bond market. That segmentation can lead to complexities for novice investors not encountered in areas such as corporate and sovereign debt.
However, CVSB can help investors navigate those complexities. Active management signals some degree of flexibility, whereas index rules constrain many passive rivals. CVSB’s combination of active management and flexibility implies the fund isn’t highly constrained when it comes to constructing it’s portfolio’s corporate bond portion. That’s a potentially alluring trait as fragmentation lingers in the ESG bond market.
“Green bonds accounted for 62% of aligned volume, with USD278.8bn recorded in H1. This was followed by social and sustainability debt contributing 15% and 14% respectively,” noted Climate Bonds.
Another interesting fact highlights long-term possibilities. For the first time globally, green bond issuance in the first half of 2023 exceeded that of fossil fuel producers.
“A crucial decarbonisation lever for entities operating in almost all sectors is access to low-carbon energy. Electric vehicles, energy-efficient buildings, and even production processes in the hard-to-abate sectors such as steel and cement rely on access to low-carbon energy as part of entity-level strategy to achieve net[1] zero given their high energy needs and consumption,” noted Climate Bonds.
Regarding future outlets that could serve as drivers of growth for ETFs such a CVSB is the social bonds arena. In the first half of 2023, none of the top 10 issuers of socially aligned bonds were domestic entities, either governments or US-based corporations. CVSB could have the ability to add such corporate issues as more come to market in the U.S.
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