As more and more investors seek refuge in the bond markets, which can fuel more growth in fixed income, product differentiation can help spur more innovation in the space.
Investors asked and now they are receiving—it seemed the demand for environmental, social and governance (ESG) fixed income was only getting stronger as the space began to gain steam, and now, green bonds are beginning to sprout everywhere.
While the issuance of green bonds dipped in the first quarter, the VanEck Vectors Green Bond ETF (NYSEArca: GRNB) remains a top consideration for income investors looking to apply environmental, social and governance principles.
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.
What makes GRNB all the more notable in the current market environment is that some analysts are saying the COVID-19 pandemic highlights the need for more ESG fixed income options. In fact, Bank of America recently issued pandemic bonds.
“The bank priced a $1 billion bond offering May 14 to fund projects addressing social issues related to Covid-19, the first sale from a U.S. financial institution that explicitly links all proceeds to tackling the virus. Response from investors has been enthusiastic,” reports Bloomberg.
Going Green Matters
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.
Investors, including institutions, are clamoring for green bonds, a surefire sign that the space is growing and could continue to do so as more investors demand green initiatives in their investments. Private industries are also joining the fray, offering their own green bond issues that address investors’ needs for environmentally friendly initiatives.
Bank of America issued $8 billion worth of ESG debt this year and “ESG-focused investors like Nuveen and Eaton Vance Management anticipate that more commercial banks will follow suit,” according to Bloomberg.
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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.
