Sustainable Bond Trends Highlight RBND, MBNE Opportunity

Issuance of sustainable bonds and related fare dipped a bit in the third quarter, but the overall trends in this corner of the fixed income market are encouraging. That could prove to be good news for patient investors embracing exchange traded funds such as the SPDR Bloomberg SASB Corporate Bond ESG Select ETF (RBND) and the SPDR Nuveen Municipal Bond ESG ETF (MBNE).

RBND is an index-based ETF focusing on corporate bonds with solid environmental, social, and governance (ESG) ratings, while MBNE is an actively managed fund emphasizing the growing ESG municipal bond space.

Clearly, this pair of SPDR bond ETFs take different approaches to the ESG/fixed income combination, but both are relevant at a time when renewable energy financing needs are increasing.

“Global issuance of green, social, sustainability and sustainability-linked (GSSS or sustainable) bonds totaled $215 billion in third-quarter 2022, down 13% from a year earlier and down 10% from the second quarter of this year. Across the four segments, there were $119 billion of green bonds, $41 billion of social bonds, $47 billion of sustainability bonds and $8 billion of sustainability-linked bonds,” according to Moody’s Investors Service.

Due to a rough environment for bonds this year, issuance of green, sustainable, and related debt is on pace to decline but still come in at a sturdy $900 billion, noted Moody’s. That could be good news for MBNE because while some market participants are enthusiastic about the combination of municipal bonds and ESG, many are concerned about the lack of issues in the space that have credible ESG properties.

Boding well for both MBNE and RBND over the long term is the point that decarbonization and the renewable energy transition are multi-trillion dollar endeavors. Corporations and governments don’t have that type of cash just lying around, meaning they’ll have to tap bond markets to reach their climate goals.

“An important theme at COP27 will be the continued global focus on the need for a ‘just transition’ – that is, achieving the transition to a low-carbon economy in a socially equitable manner. Sovereign governments, particularly those in emerging markets, are at the forefront of financing initiatives that can support sustainable development while ensuring a just transition,” added Moody’s.

The research firm added that various policy developments around the world could pave the way for broader adoption and issuance of green bonds, which could be to the long-term benefit of ETFs such as MBNE and RBND.

For more news, information, and strategy, visit the ESG Channel.

 

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.