This year has brought a record number of storms that have forced insurance companies to dole out multi-billion payouts. It’s just one example, but it also highlights the need for elevated climate investments, which can act as buffers when unusual weather events and extreme heat arrive.
As has been widely documented, carbon reduction and climate-related expenditures are expected to swell to tens of trillions of dollars in the years. That’s a massive ballpark, but one that’s necessary. Many entities, including cities and states, don’t have enough cash on hand today to devote to climate spending, underscoring the viability of green and sustainability bonds. Green debt is accessible via the VanEck Green Bond ETF (GRNB).
GRNB, which debuted in 2017, is in the spotlight because green bond issuance is proving sturdy this year. Importantly, that’s not likely a fad. It could be the start of a lengthy, sustainable trends because more cities and states are turning to the green/sustainable bond markets to raise capital for environmentally friendly projects, including vital infrastructure enhancements.
Audience Increasingly Receptive to Green Bonds
Green and sustainability-linked bonds are young relative to other parts of the fixed income market, but necessity takes precedent over youth and more market participants are awakening to the utility of green debt.
“Appetite for sustainability bonds has grown over the last five years, among both the investors who purchase these bonds and the companies and municipalities that issue them,” noted Morgan Stanley. “For issuers, these bonds can help address both environmental and social issues associated with climate change, mitigate impacts from extreme weather disasters and, in some cases, respond to government-mandated standards for energy usage and carbon emissions.”
Perhaps boosting the long-term appeal of GRNB are multiple points, including the various avenues through which green and sustainable bonds are pertinent and the rising participation of large domestic jurisdictions in these corners of the bond market. Think of California and New York, among others. In fact, the New York metro area is case study in using sustainable debt to short up flooding and storm resources and using these bonds for improvements to environmentally sound housing.
“In an effort to reduce greenhouse gas emissions, states and cities have new environmental requirements for affordable housing. Sustainability bonds are helping states build new housing that meets these criteria,” concluded Morgan Stanley. “For example, in 2022, New York State announced proposed legislation to ensure that new building construction reaches net-zero emissions by 2027. In June 2023, the New York State Housing Finance Agency (NYSHFA) issued $285 million of sustainability bonds, which were underwritten by Morgan Stanley, to finance the new construction of 797 affordable multifamily housing units located in Brooklyn, the Bronx, Westchester and Suffolk County.”
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