Green bonds around the globe are expected to grow another 20% or $250 billion this year compared to last year—a surefire sign that the space is growing and could continue to do so as more investors demand green initiatives in their investments.
“The securities provide one of the most direct ways for investors to make a measurable, positive impact on the environment, by funneling capital to projects across the globe that have a specific environmental benefit,” wrote Barron’s Abby Schultz. “One example from earlier this year is Netherlands-based TenneT Holding’s €1.25 billion (US$1.4 billion) two-part offering to connect offshore wind projects to the onshore electricity grids in the Netherlands and Germany.”
One of the purveyors of green funds comes from the world’s second largest economy.
“Another is China’s Industrial and Commercial Bank of China (ICBC) Singapore branch’s three-part, multi-currency US$2.2 billion-equivalent Green Belt and Road Inter-bank Regulation Cooperation Bond, which will finance renewable energy, low-carbon and low-emissions transportation, energy efficiency, and sustainable water and wastewater management,” Schultz wrote.
Private industries are also joining the fray, offering their own green bond issues that address investors’ needs for environmentally friendly initiatives.
“Throughout the sector’s rapid growth, the type of green bond issuers have shifted from ‘super sovereigns, like the World Bank or Asian Development Bank, to corporations—utilities and energy companies, but also banks and auto makers,” wrote Schultz. “Apple has issued US$2.5 billion in green bonds over time to finance clean energy and environmental projects in its operations and throughout its supply chain. There’s also more diversity in the type of bonds being issued. While super sovereigns initially issued short-duration securities, which didn’t offer much additional yield over government benchmarks, issuers more recently are offering longer-dated bonds, with the proceeds going to fund specific projects.”
As more and more investors seek refuge in the bond markets, which can fuel more growth in fixed income ETFs, product differentiation can help spur more innovation in the space. One of those areas experiencing growth is more fixed income funds incorporating environmental, social impact and governance (ESG) features like OneAmerica, which has added 12 ESG Investment offerings to its Group Annuity platform, after an increasing interest in ESG investing over the last six months.
“For some, the value of an investment is no longer just about returns, but about returns that are achieved in concert with making a positive impact on society and the world at large,” said Sandy McCarthy, president of OneAmerica retirement services. “ESG indexes can achieve these dual ideals, because as Morningstar research shows1, they favor companies with healthier balance sheets, stronger competitive advantages, and lower volatility than their mainstream counterparts.”
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