The green investing conversation has long revolved around equity-based strategies, but fixed income is a growing part of the equation. Income investors can access that theme with the VanEck Vectors Green Bond ETF (NYSEArca: GRNB).
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 the supranational, government, and corporate issuers globally in multiple currencies,” according to VanEck.
Green bonds, the first of which was issued in 2007 by the European Investment Bank, are debt issued to fund environmentally friendly projects. Against the backdrop of the U.S. rejoining the Paris Climate Accord, GRNB and green bonds are increasingly relevant today.
“Green bonds allow investors with tools to build sustainable core fixed income portfolios without significantly impacting risk and return, and leverage the vast size and diversity of the global debt markets to help achieve global climate objectives,” said William Sokol, VanEck senior ETF product manager, in a note. “A framework to evaluate green bonds that uses the Paris Agreement objectives as its foundation to identify projects with a role in a net-zero carbon economy can help investors have confidence that their income portfolios are also making a positive impact.”
Going Green with ‘GRNB’
GRNB features a mix of corporate and sovereign debt and plenty of ex-U.S. diversification, all of which are points to consider in the current environment.
The bulk of the fund’s holdings dwell in investment-grade territory, mitigating some credit risk investors find with other international bond strategies. Adding to GRNB’s near-term allure is green bonds’ strong start to 2021.
“The green bond market has started off strongly this year, with issuance of over $100 billion already through mid-April, putting the market on track for another record-breaking year in terms of issuance,” adds Sokol. “Compared to last year, the increase in corporate issuance has been notable, making up about 50% of total issuance. This is perhaps unsurprising in the context of the numerous corporate “net-zero” commitments and increased pressure from investors to address climate risks.”
GRNB is also a relevant consideration because global investors are clamoring for sustainable fixed income offerings.
“Investor demand for sustainable fixed income has rapidly increased. Inflows into sustainable fixed income ETFs in the U.S. alone totaled $2.2 billion in 2020, almost four times the total inflows of the prior three years combined,” writes Sokol. “Within fixed income investing, investors now have greater choice in terms of how to structure their portfolios to align with their sustainability objectives. There is growing differentiation in terms of “how green” different bonds are and whether an investment is aligned with a net-zero economy already, versus those which may be part of a transition towards that objective.”
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