Advisors and investors wondering when the concepts of environmentally conscious and sustainable investing would make their way to fixed income ETFs may be excited about the prospects for 2020 and the VanEck Vectors Green Bond ETF (NYSEArca: GRNB).
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.
“The issuance of green, social and sustainability bonds, those where the proceeds will be exclusively applied to eligible environmental and/or community projects, are expected to climb 24% to $400 billion in 2020 from a previous record of $323 billion achieved last year, a report published Monday shows,” reports Cecilia Jasmine for Mining.com.
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.
ESG And Other Ideas
As more equity-based environmental, social and governance ETFs have come to market, advisors, and investors have long pondered how they can apply similar virtues to the fixed income sleeves of their portfolios.
ETF issuers have responded by increasing the number of available ESG bond funds, a group including the iShares ESG U.S. Aggregate Bond ETF (NYSEARCA: EAGG). EAGG, which recently turned a year old, “eeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade bonds from issuers generally evaluated for favorable environmental, social and governance practices while exhibiting risk and return characteristics similar to those of the broad U.S. dollar-denominated investment-grade bond market,” according to iShares.
While green bonds remain a small part of the overall fixed income market, data confirm these environmentally-friendly instruments are growing and doing so at a time when more advisors and investors are mulling sustainability in their portfolios.
“Green bond issuance will reach $300 billion this year, while social and sustainability bonds will reach $25 billion and $75 billion, respectively, spurred by the EU’s newly approved set of guidelines on what counts as a sustainable investment, Moody’s says,” reports Mining.com. “As the social and sustainability bond markets grow and mature, the credit ratings firm expects issuance from these segments to become more diversified in terms of sector and region, similar to trends seen in the green bond market.”
For more investing strategies, visit our Tactical Allocation Channel.
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.