President Donald Trump has been widely criticized for his decision to remove the U.S. from the 2015 Paris Agreement on Climate Change, but that controversial decision is unlikely to hamper the VanEck Vectors Green Bond ETF (NYSEArca: GRNB).
GRNB, the first exchange traded fund dedicated to green bonds, debuted earlier this year. The ETF tries to reflect the performance of the S&P Green Bond Select Index, which is comprised of debt issued for qualified “green” purposes.
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.
Even with the U.S. out of the Paris accord, the future is bright for green bonds.
“The U.S. has thus far had a relatively small presence in the global green bonds market. Europe, and more recently China and other emerging markets, have played a much greater role in the development of the market in terms of formulating policies that support market growth. Even though the U.S. has ceded its position on the issue of climate change, other countries will likely continue to make progress on renewables, electric vehicles, etc., providing a strong project pipeline for green bonds,” according to a recent VanEck note.
GRNB holds 41 green bonds and the U.S. is merely the ETF’s fourth-largest country weight at 10.1%. The ETF allocates about 36% of its combined weight to French and German issues. About 84% of GRNB’s holdings are denominated in euros or dollars.
GRNB is a socially responsible bond ETF investment that provides a real impact on the world.
The issuer of the bond must 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.
“The green bonds market in the U.S. has developed with little support from the federal government. A wide range of companies had urged the administration to remain in the agreement, and corporate issuers like Apple have issued green bonds both to tout their environmental stewardship and in response to investor demand. Much of the growth in the U.S. has been in the municipal market, which is expected to continue to expand given the massive infrastructure investment needed,” according to VanEck.
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