The VanEck Vectors Green Bond ETF (NYSEArca: GRNB), the first fixed income exchange traded fund offering exposure to green bonds, is a premier avenue to sustainable investing in the fixed income space as well as an effective way to tap a rapidly growing corner of the bond market.
Green bonds are debt securities issued to finance projects that promote climate change mitigation or adaptation or other environmental sustainability purposes. The new breed of green bonds gained momentum in global market ever since the European Investment Bank issued the first green bond in 2007.
GRNB tracks the S&P Green Bond Select Index, which is “comprised of labeled green bonds that are issued to finance environmentally friendly projects, and includes bonds issued by supranational, government, and corporate issuers globally in multiple currencies,” according to VanEck.
Green bonds “can allow investors to integrate sustainability into their portfolios without sacrificing return. In the vast majority of cases, green bond investors are not assuming the risk of the projects that are being financed, which I think is probably the most powerful value proposition of green bonds,” said VanEck Senior ETF Product Manager William Sokol in a recent note.
Going Green With GRNB
GRNB, which turns two years old in less than a month, holds 180 green bonds. Holdings are a mixed of corporate debt and sovereign bonds. The fund has a 30-day SEC yield of just 1.51%. That low yield is attributable to GRNB’s robust credit quality. About two-thirds of GRNB’s holdings are rated AAA, AA or A.
“Another attractive feature of green bonds relates to environmental impact,” said Sokol. “Green bonds are defined by what they finance, rather than the issuer, and investors can get data on specific projects funded by an individual bond. That helps investors quantify the impact their investment is making, with metrics such as carbon emissions reduced and water saved. There is certainly more progress to be made around measuring and reporting environmental impact, but most issuers are providing information. This transparency is another very powerful value proposition of green bond investing, especially for impact-oriented investors.”
GRNB has an effective duration of 6.43 years. Some market observers expect global green bond issuance will swell to a record $200 billion this year.
“A green bond strategy may provide investors exposure to issuers who are proactively addressing climate risk. And because you don’t currently give up yield, you can think of green bonds as a cheap or free hedge against climate risk in a portfolio,” according to Sokol.
For more information on the fixed-income markets, visit our bond ETFs category.