Green Bonds Gain Momentum

With so many investors applying environmental, social and governance principles to equity investments, it was only a matter of time before the bond universe got in on the act. A new fixed income exchange-traded fund, the VanEck Vectors Green Bond ETF GRNB, allows bond investors to emphasize ESG virtues in the bond market.

The VanEck Vectors Green Bond ETF debuted in March and could serve to illuminate investors to the potential of green bonds, a still small but rapidly growing part of the bond market. GRNB, the first ETF in the U.S. dedicated to green bonds, follows the S&P Green Bond Select Index.

GRNB's “index 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.

Green Bonds Are For Real

“The total amount of green-labeled bond issuances amounted to USD 93.4 billion at the end of 2016 and reflected strong China-based issuances and momentum from the Paris Agreement,” said S&P Dow Jones Indices. “Leveraging its ‘AAA’/‘Aaa’ credit rating, the World Bank has issued over USD 9.7 billion in green bonds through more than 125 transactions in 18 currencies.”

GRNB reflects the global nature of the green bond market. The ETF's US dollar-denominated holdings represent just 38 percent of its currency composition. Likewise, U.S. green bond issuers are just 10.6 percent of the ETF's weight, placing the country fourth among GRNB's geographic holdings behind the likes of France, Germany and the Netherlands.

Overall, GRNB holds 58 bonds, the bulk of which are highly rated. Nearly 75 percent of the ETF's holdings are rated AAA, AA or A. As such, the ETF's yield is about 1.1 percent.

A Growing Market

Data suggest the global green bond market is growing in significant fashion.

“According to a research report by Moody’s (2017), 8 green bond issuance increased every year by an annual average of 163% between 2011 and 2015, and it set consecutive issuance records during 2013-2015,” said S&P Dow Jones. “In 2017, labeled green bond issuances could reach up to USD 200 billion, according to the report.”

China is driving growth of the green bond market this year as the country boosts issuance of bonds that fit its own and international standards for green bond investing.

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