In the global race to embrace renewable energy, western economies, are leading. While emerging markets – many of which are big polluters – are lagging. One reason is that some developing economies lack adequate access to capital to finance renewable energy ambitions. Green bonds are changing that and the asset class is accessible via the VanEck Green Bond ETF (GRNB).
GRNB is the original ETF dedicated to this rapid corner of the bond market. It’s a pertinent fixed income idea at a time when emerging markets can up their efforts in fighting climate change. And because green bonds are ideal for making that happen.
Data on the Side of GRNB
Data confirm the massive spending required for developing economies to up their renewable energy resumes. Should those countries get even close to the required spending, it could lead to a spate of green bond issuance in the years. It could potentially turn more attention to GRNB.
“Emerging markets will require annual investments to more than triple from $770 billion in 2022 to $2.8 trillion by the early 2030s to meet rising energy needs while fulfilling climate goals set by the Paris Agreement,” noted William Sokol, VanEck director of product management.
The $2.8 trillion estimate mentioned above is a massive number. And even if emerging economies come close to spending that much on climate change and carbon reduction efforts, all of that financing won’t be procured in the form of green bonds. However, a fair amount could be.
Green bond issuance matriculated higher in recent years. This indicates more companies and governments are embracing these bonds as avenues for renewable energy financing. Additionally, highly rated sovereign issuers of this form of debt can issue these bonds at favorable interest rates while still finding receptive audiences, particularly among institutional investors looking to boost exposure to sustainable fixed income instruments.
Additionally, data confirm two important points regarding GRNB and emerging markets exposure. First, these economies are increasing green bond issuance. Second, there’s still plenty of room for growth.
“Since 2016, 19 emerging market governments have issued green, social, and sustainability bonds to help fund sustainable investment domestically,” concludes Sokol. “However, emerging market governments only represent 2% of total green and sustainable bonds issued globally with $74 billion raised as of January 2023. Emerging market sovereign issuers in the S&P Green Bond U.S. Dollar Select Index only accounted for 2.6% of the index market value as of July 31, 2023.”
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