Investors looking for socially responsible takes on fixed income investing have an increasing number of options in the world of exchange traded funds.
That includes funds providing access to green bonds, or those bonds issued by corporate and sovereign issuers used to fund environmentally friendly projects.
What Happened
The VanEck Vectors Green Bond ETF GRNB debuted nearly two years ago as the first ETF dedicated to green bonds.
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 supranational, government, and corporate issuers globally in multiple currencies,” according to VanEck.
Why It's Important
There are important differences between green bonds and traditional corporate debt.
“They are backed by the full balance sheet of the issuer, rather than the cash flow of the underlying projects, so the risk/return profile is the same as a conventional bond, all else equal,” said VanEck in a recent note. “For example, a green bond issued by Apple should provide a similar yield and return as a non-green Apple bond, after adjusting for factors like differences in maturity or liquidity.”
GRNB holds 180 green bonds, including an issue from Apple Inc. AAPL. The fund has a 30-day SEC yield of 1.52 percent and an effective duration of 6.43 years. That low yield is reflective of GRNB's high credit quality. At the end of last year, about two-thirds of the fund's holdings were rated AAA, AA or A.
“Green bonds are defined by what they finance, rather than the issuer, and investors can get data on specific projects funded by an individual bond,” said VanEck. “That helps investors quantify the impact their investment is making, with metrics such as carbon emissions reduced and water saved.”
What's Next
In a word, growth. The green bond market is just a decade old, but 2019 is expected to see an exponential increase in issuance of these bonds.
Moody's Investors Services expects green bond issuance to swell 20 percent to $200 billion this year.
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