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The Name’s Bond…Green Bond

With a vaccine on the cusp of production and a new president ready to take the helm at the White House, there’s still a lot of uncertainty looming for the debt market, which calls for investment grade bonds. On the other hand, sectors like environmental, social and governance (ESG) investing are performing well. One way to get access to both investment grade bonds and ESG is the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (ESCR).

 

ESCR seeks investment results that correspond generally to the performance, before fees and expenses, of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index. The fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the underlying index.

 

The index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects.

 

ESCR Chart

 

ESG a Hit in Both Europe and the United States

Even before the ESG phenomenon hit the U.S., it was already a growing hit in Europe. Now, it’s spreading around the world with boy band-like popularity.

 

Per a Market Screener article, “Green financial markets are growing rapidly globally. Assets of funds with an environmental, social and governance (ESG) mandate have grown by 170% since 2015. The outstanding amount of euro area green bonds has increased sevenfold over the same period. Given the financial stability risks stemming from climate change, this box aims to understand the performance of such products and their potential for greening the economy. It focuses on the resilience of ESG funds and the absence of a consistent ‘greenium’ a lower yield for green bonds compared with conventional bonds with a similar risk profile reflecting the fact that green projects do not benefit from cheaper financing.”

 

“Euro area investors have pivoted towards ESG funds since the onset of the coronavirus. The aggregate exposure of euro area sectors to ESG funds has increased by 20% over the last year,” the article added.

 

And speaking once again to the growing interest in green bonds, the article noted that “In parallel, almost all sectors also increased their holdings of green bonds in the first quarter of 2020. Euro area investors now hold €197 billion of euro area green bonds. Market intelligence suggests that green bonds were issued in primary markets at lower interest rates and with larger order books than conventional bonds in 2019 and 2020.”

 

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