ESG Bond Market Could Reach $1.8 Trillion | ETF Trends

Environmental, social, and governance (ESG) bonds are becoming a worldwide phenomenon, and estimates show that the space could reach $1.8 trillion by the end of the year.

This growth isn’t relegated to just developed markets. Emerging markets are also expected to witness the growth of ESG bonds in order to fund green projects.

“Emerging governments sold bonds geared toward environmental, social and governance issues at more than twice the pace of mature economies in 2021, when compared to the year prior, according to data from the Institute of International Finance,” an Advisor Perspectives article notes. “The growth rate of ESG bonds sales clocked in at 97% in mature markets last year, compared to a whopping 227% in emerging economies, the data show.”

“Total ESG issuance in developing and frontier markets reached $230 billion in 2021, up from just $75 billion a year earlier, according to the IIF,” the article says further. “Socially responsible capital-raising around the world is expected to reach $1.8 trillion in 2022, the Washington-based organization wrote in a recent note.”

Get ESG Corporate Bond Exposure

As the trend towards more green bonds by corporate America continues to push higher, bond investors can get in on the action with the Vanguard ESG U.S. Corporate Bond ETF (VCEB). Fixed income investors can combine the benefits of higher yields and ESG principles with VCEB.

Per its fund description, VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index. The index excludes bonds with maturities of one year or less and with less than $750 million outstanding, and is screened for certain ESG criteria by the index provider, which is independent of Vanguard.

VCEB highlights:

  • Provides debt issues screened for certain ESG criteria.
  • Specifically excludes bonds of companies that the index sponsor determines are involved in and/or derive threshold amounts of revenue from certain activities or business segments related to: adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.
  • Excludes bonds of companies that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG controversies assessment framework, as well as firms that fail to have at least one woman on their boards.

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