China's Clean Energy Ambitions Driving Green Bond Issuance

China’s green energy ambitions and needs could power an uptick in green bond sales this year, potentially providing a catalyst for the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) in the process.

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 the supranational, government, and corporate issuers globally in multiple currencies,” according to VanEck.

Green bonds are debt securities issued to finance projects that promote climate change mitigation or the adaptation of other environmental sustainability purposes. The new breed of green bonds has gained momentum in the global market ever since the European Investment Bank issued the first green bond in 2007. Plenty of eyes are now turning to the U.S. green bond market.

“China’s energy transition roadmap for 2021-2025 and beyond, widely expected to be unveiled early March, will likely give a much-needed boost to the nation’s green bond issuance that declined for the first time last year due to the pandemic,” reports S&P Global Market Intelligence.

GRNB 1 Year Performance

Going Green with GRNB

As Covid-19 racked the capital markets in 2020, a move to safe haven assets like government and investment-grade debt helped to fuel niche-based green bonds. Per a Reuters article, “global green bond issuance reached a record high of $269.5 billion by the end of last year and could reach $400-$450 billion this year, a report by the Climate Bonds Initiative (CBI)” said.

There is another potential catalyst on the horizon for GRNB and the broader green bond market.

“The market is awaiting Beijing’s top-level policy blueprint, which will include the 14th five-year plan for 2021-2025 and long-range objectives through 2035, scheduled to be released during the annual session of China’s legislature early March. The blueprint will, among other things, give clear directions of how China, the world’s largest emitter, plans to achieve peak carbon before 2030 and carbon neutrality by 2060. The policy details will likely unleash demand to fund new green projects, experts say,” writes S&P Global.

GRNB features a mix of corporate and sovereign debt and plenty of ex-U.S. diversification, all of which are points to consider in the current environment.

Investors, including institutions, are clamoring for green bonds, a surefire sign that the space is growing and could continue to do so as more investors demand green initiatives in their investments. Private industries are also joining the fray, offering their own green bonds to address investors’ needs for environmentally friendly initiatives.

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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.