Environmental, social, and governance (ESG) investing isn’t just relegated to equities. Bond investors can get in on the ESG action with ETFs like the VanEck Vectors Green Bond ETF (GRNB).

GRNB seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the S&P Green Bond U.S. Dollar Select Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index is comprised of bonds issued for qualified ‘green’ purposes and seeks to measure the performance of U.S. dollar denominated ‘green’-labeled bonds issued globally. GRNB is slightly ahead of the iShares Core US Aggregate Bond (AGG), a popular broad-based ETF.

GRNB Chart

Overall, GRNB gives investors:

  • Access to bonds issued to finance projects that have a positive impact on the environment
  • An ESG solution for a core bond portfolio
  • An index that includes only U.S. dollar-denominated bonds designated as ‘green’ by the Climate Bonds Initiative
  • Access to green bonds at a low 0.20% expense ratio, 21 basis points lower than its categorical average

Record Growth for Green Bonds in 2020

As Covid-19 racked the capital markets in 2020, a move to safe haven assets like government and investment-grade debt helped to fuel niche-based green bonds. Per a Reuters article, “global green bond issuance reached a record high of $269.5 billion by the end of last year and could reach $400-$450 billion this year, a report by the Climate Bonds Initiative (CBI)” said.

“Green bonds are a growing category of fixed-income securities that raise capital for projects with environmental benefits, such as renewable energy or low-carbon transport,” the article said further. “Although issuance reached a new record in 2020, the figure was just above 2019’s total of $266.5 billion as issuance slowed in the second quarter due to the effects of the coronavirus crisis before rebounding in the third quarter.”

“The impact of COVID-19 in 2020 proved a huge economic and social negative. In that context, the resilience of green finance markets led to a record year of issuance,” the report said.

With a new year underway, look for green bonds to continue to gain popularity in 2021. U.S. President Joe Biden’s support for clean energy policy could also help fuel an interest in green bonds.

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