The coronavirus pandemic is not doing emerging markets (EM) any favors now, but one area that could see growth is green bonds in the environmental, social, and governance (ESG) space. Green bond issuance in EM saw a marked increase in 2019.
“Green bond issuance in emerging markets saw a sharp increase in 2019, rising to US$52 billion – a 21% increase, according to a joint report published by Amundi and the International Finance Corporation (IFC),” a Funds Europe report noted. “Over the same period, the global green market saw a record of $240 billion in issuance. The figure accounts for 3% of total global bonds issued in 2019. Since 2012, 35 emerging markets have issued green bonds with five making their debut offerings last year, according to the Amundi-IFC Emerging Market Green Bond Report.”
Who took the top spot in terms of green bond issuance last year in the EM space? That accolade went to the second largest economy.
“Of the emerging markets, China was the largest issuer of green bonds last year with more than $34 billion – something it has done each year since 2016,” the report said. “East Asia and the Pacific account for 81% of total emerging market green bond issuance.”
EM-based ESG could be the best opportunity moving forward for EM, particularly after the coronavirus pandemic did a number on the space. Moving forward, this could be the safest play as the effects of the pandemic could take a further toll in EM.
“However, responsible investors with long-term allocations to emerging markets can collaborate with issuers through green bonds and ESG funds to unlock long-term capital and help issuers become more resilient,” the Amundi-IFC Emerging Market Green Bond Report said.
Broad-based ESG exposure can be had with funds like the Vanguard ESG U.S. Stock ETF (ESGV). ESGV seeks to track the performance of the FTSE US All Cap Choice Index, which is market-capitalization weighted, as well as composed of large-, mid-, and small-cap stocks of companies located in the United States that are screened for certain ESG criteria by the index sponsor, which is independent of Vanguard.
Investors who want ESG exposure via an ETF wrapper can take look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
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