Last year was a banner year for green bonds. Not only did issuance hit a record, the dollar tally for green bonds sold eclipsed the amount of debt sold by fossil fuels producers for the first time.
That’s evidence that the Climate Bonds Initiative is working, and that could be a long-term plus for the VanEck Vectors Green Bond ETF (NYSEArca: GRNB), the original exchange traded fund dedicated to green bonds.
In simple terms, a green bond is corporate or sovereign debt sold to finance environmentally friendly projects. However, that definition leaves a lot of wiggle room, and some issuers can take advantage of that wide berth. The Climate Bonds Initiative brings credibility to green bond issuance.
“The Climate Bonds Initiative has revealed that it certified more than $200bn of bonds in 2021, from more than 220 issuers, marking a record high,” reports Edie. “The calculation is for bonds that were issued under its Climate Bonds Standard – one of the most popular certifications for green bonds with a focus on climate mitigation and/or adaptation.”
Bringing credibility and issuing standards to the green bonds landscape is vital because it can serve to broaden the audience for these bonds, particularly among institutional investors. Additionally, enhanced standards in the green bond space arrive at a time when asset allocators are clamoring for more clarity on environmental, social, and governance (ESG) ratings and scoring.
“The Climate Bonds Standard is currently in its third iteration, and more major updates are due in 2022. The Standard will this year see new transition criteria added, meaning that issuers will need to prove how the activities they plan to finance are compatible with a transition to net-zero by 2050 or sooner,” according to Edie.
Sovereign issuers are taking advantage of the new standards to bring more green bonds to market.
“Several of the other major issuances documented by the Climate Bonds Initiative came from organisations linked to national governments, Chile issued $1.26bn of certified bonds in 2021 and will spend proceeds on programmes to decarbonise transport and buildings. Australia’s Queensland Treasury Corporation issued green bonds totalling $2.21bn, while China’s state-led development bank raised $6bn,” notes Edie.
Those three countries combine for over 11% of GRNB’s geographic exposure. The $102.3 million ETF holds 307 bonds with an effective duration of 5.71 years.
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