Environmental, social, and governmental (ESG) investing is proving to be a prevailing trend. Amid a growing bond market, consider a specific ETF from Vanguard.
The equity market wasn’t the only asset that got struck with volatility in April. Bonds were also hit, including tried-and-tested debt issues like municipal bonds. One corner of the bond market that exhibited resilience, however, was green bonds.
“Even as municipal bonds sagged in April amid greater supply and worries that trade wars would boost inflation, the green bond market held steady,” explained Morningstar.
Bond funds originally gained traction in Europe before eventually permeating the U.S. market. Fixed income investors laud them for their income potential. But they also appreciate the ESG component that adheres to principles beyond just profitability.
The ESG market saw expansive growth and green bonds continue to head in that upward trajectory.
“Today, green bonds have a market value of around $2.9 trillion [globally. That’s] up nearly sixfold since 2018, according to a March 2025 report in the Bank for International Settlements quarterly review, Morningstar [added. It noted] that based on “research from Environmental Finance, green, social, sustainability, and sustainability-linked bonds had $46.3 billion in assets under management in [2024. That’s] up 4% from 2023 and up 39% from 2022.”
A Fund With a Discerning Filter
When it comes to getting ESG exposure in the fixed income market, investors will want a fund with a discerning filter. The explosion of ESG in in the last five years gave rise to companies taking advantage of the trend via “greenwashing.” That warranted heavy scrutiny from regulators. As such, ESG investors will want a bond fund that screens for quality issues. This is where the Vanguard ESG U.S. Corporate Bond ETF (VCEB ) becomes a prime option.
The fund’s holdings are constructed as such to mimic the performance of the Bloomberg MSCI U.S. Corporate SRI Select Index. As mentioned, the fund has an especially discerning filter focused on holdings that only meet strict ESG criteria. Therefore, it excludes bond issues from companies that derive their revenue from the following sources: adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, and thermal coal, oil, or gas.
To mitigate credit risk, the fund sticks with investment-grade bonds. The average effective maturity of the holdings (as of 4/30) is just under 10 years. That makes the fund tilt more toward intermediate bonds. With over 2,800 bonds in its portfolio, VCEB is well-diversified. Furthermore, its cost effectiveness is apparent in its 0.12% expense ratio.
For more news, information, and analysis, visit the Fixed Income Channel.
