The green bond market continues emerging as valid access for environmentally conscious fixed income investors and the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) remains the premier avenue for tapping green debt.
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 an adaptation or other environmental sustainability purposes. The new breed of green bonds gained momentum in the global market ever since the European Investment Bank issued the first green bond in 2007.
“In June 2019, Reuters published that green bond issuance for the year had surpassed USD 100 billion, which extolled a milestone of the first time the green bond issuance pace had reached the USD 100 billion mark by the first half of the year,” S&P Dow Jones Indices said in a recent note. “Issuance could be on track to double by the end of the year. Since the end of June, USD 90 billion more has been issued, bringing the 2019 total to USD 212 billion in issuance as of October 2019.”
Green Bonds Are Booming
While green bond issuance in 2018 was only modestly higher than 2017’s issuance, new green bond issues could rise to $250 billion this year, according to VanEck data. That number could be significantly higher in 2020.
Green bonds typically carry high credit quality as highlighted by the fact that about 61% of GRNB’s holdings are rated AAA, AA or A. That’s a significantly higher percentage of A ratings than are found in traditional corporate bond funds.
“Currently, the green bond market is small when compared to the overall fixed income market. Issuance continues to increase along with the diversity of issuers,” said S&P Dow Jones. “The existence of the green bond market and the S&P Green Bond Index is a start, but if capital markets are to meet the needs of the environment and reversing the damages of climate change, the scale of investment capital would have to be exponentially larger in order to meet the challenge.”
GRNB is up 3.24% year-to-date.
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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.