The start of 2024 has been marked by record issuance both in the public and private business sectors. In terms of the latter, green bonds are also hitting the market, as in the case of plastics maker Dow Inc.
According to the linked Yahoo Finance report, the company is “is tapping the green-bond market for the first time as it looks to reduce its carbon emissions and plastic waste.” For the fixed income investor, it’s an opportunity to get exposure to corporate debt for yield opportunities. But it’s also an opportunity to synergize the investment component with their principles related to ESG.
As mentioned, the beginning of 2024 has been marked by record issuance. That’s because companies are looking to borrow more funds. Companies may also be looking to refinance at a later date in anticipation of lower interest rates. The Federal Reserve has stood pat on cutting rates just yet. But given the amount of issuance, it appears companies are willing to exercise patience.
Green bonds will appeal to investors who look to add environmental consciousness to their bond portfolio. Many of these bonds are used to fund specific projects. Some of those are focused on reducing the issuing company’s carbon footprint, as in the case of Dow Inc.
“Proceeds from such offerings will be used to fund a range of eligible projects. [These include] energy efficiency, renewable energy, decarbonization and initiatives aimed at ending plastic pollution, according to its green financing framework,” the report added.
Get Broad ESG Bond Exposure
Fixed income investors looking for that duality of corporate bond exposure and ESG can look to a broad market option via the Vanguard ESG U.S. Corporate Bond ETF (VCEB). It seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index.
That index excludes bonds with maturities of one year or less and with less than $750 million outstanding. It is screened for certain ESG criteria by the index provider, which is independent of Vanguard. It 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. Those include adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.
VCEB has a 30-day SEC yield of 5.02% as of February 5. And its maturities are primarily in the intermediate range (an average effective maturity of about 10 years). They also include investment-grade corporate debt.
For more news, information, and analysis, visit the Fixed Income Channel.