There are myriad options for investors considering equity-based plays on climate-driven and renewable energy investing. In the fixed income space, there are fewer options, emphasizing the utility of green bonds.
Fortunately, the VanEck Green Bond ETF (GRNB) makes access to green bonds easy and efficient. The exchange traded fund is a pertinent consideration today because quality sources of fixed income are in style and because the capital requirements for advancing climate-driven projects are substantial.
When it comes to the spending required, and thus the potential issuance of more green debt in the coming years, the field is diverse. It consists of both companies and governments and the runway for growth on this front is sizable.
“Financing this economic transformation will require vast amounts of capital. One recent estimate puts the average annual investment needed to achieve a net zero global economy by 2050 at $9.4 trillion. In response, public and private investors are mobilizing capital to support innovative solutions in areas such as renewable energy, green infrastructure, energy efficiency, and carbon capture,” according to Goldman Sachs Asset Management (GSAM).
There are other points in GRNB’s favor. First, the VanEck ETF holds 327 bonds, removing the need for advisors and investors to pick among individual green bonds. Second, climate-based bonds are still a relatively young corner of the fixed income market, meaning that at certain times, liquidity is difficult to source. However, that’s not a major concern with green bonds.
Regarding liquidity, which is often a primary concern for market participants that conduct large transactions in the bond market, GRNB’s liquidity is stout and likely to improve over time due to the rapid growth of this bond segment.
“The rise of green bonds is changing that. Once a niche product, these bonds that finance environmentally beneficial projects have entered the investing mainstream. The market is expanding, with average growth of about 90% per year from 2016 to 2021,” added GSAM. “Thanks to this rapid growth and the widening range of mutual funds offering exposure to green bonds, investors can use them to replace a portion of the conventional bonds in their fixed income allocation.”
GRNB, which turns six years old next month, also doesn’t skimp on income as highlighted by its 30-day SEC yield of 4.80%, as of February 2. That’s impressive when considering nearly 77% of the bonds held by the ETF sport investment-grade ratings.
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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.
