Market Overview

Going Green With A Bond ETF

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Going Green With A Bond ETF

When it comes to the environmental, social and governance (ESG) investing theme, investors have a growing number of options among equity-based exchange traded funds.

The “E” in ESG is particularly easy to access as investors can find ETFs that do everything from exclude the energy sector to focusing on companies with low carbon footprints. Until now, green investing via ETFs for fixed income investors has been more difficult. The newly minted VanEck Vectors Green Bond ETF (NYSE: GRNB) changes that.

GRNB debuted almost two weeks ago as the first ETF dedicated to green bonds. GRNB follows the S&P Green Bond Select Index, which is “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.

While GRNB is new, its index is a little more seasoned, having debuted in 2014. And while green bonds may sound like a niche segment of the massive overall bond market, there's no denying the growth in issuance of these bonds. Last year, $82 billion in green bonds were issued and that number is expected to jump to $150 billion this year, according to VanEck

“However, the speed and momentum at which the green bond market can develop in 2017 and beyond depends on multiple variables, including policy and regulatory factors, market conditions, and financing trend,” said S&P Dow Jones Indices. “It faces a range of specific challenges and barriers, such as underdeveloped domestic bond markets, issuers’ views on costs versus benefits, a mismatch between projects, bonds, and institutional investors, and a lack of commonly accepted green standards and definitions.” 

GRNB has an effective duration of 6.3 years and a yield to worst of 1.66 percent. The new ETF holds 41 bonds, including issues from Apple Inc. (NASDAQ: AAPL) and Bank of America Corp. (NYSE: BAC) as well as green debt issued by European companies and governments.

“Increasingly, market participants are calling for more alignment and single metrics for green bond assessments to speed up market growth,” said S&P Dow Jones. “Over the course of 2017, we can expect to see further standardization and alignment of green bond assessment frameworks.”

 

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