The theme of environmental, social and governance (ESG) continues to be an investment segment that is generating interest among investors. That’s especially the case in the debt market as S&P Global is forecasting that issuance in green bonds could hit over $1 trillion by the end of this year.
“Annual issuance of all GSSSBs (green, social, sustainability, and sustainability-linked bonds) could hit $1.05 trillion in 2024, up from $0.98 trillion in 2023, according to S&P Global,” a World Economic Forum blog noted.
As noted by the World Economic Forum, green bonds were a niche corner of the ESG investment theme that originally caught on in Europe. Now it’s spreading on a global scale, allowing investors to attain fixed income exposure while catering to their ESG needs.
Today, the United States comprises the largest issuer of green bonds on a global scale, with both the public and private sectors contributing to the issuance. Whether the purpose is to fund government projects or corporate initiatives, green bonds are an ideal solution to obtain the funding while also offering an alternative asset to discerning investors looking for ESG opportunities.
“Issuing green bonds offers several advantages to organizations,” the World Economic Forum explained, “Firstly, it enhances the issuer’s reputation by demonstrating a commitment to environmental sustainability, which can improve public perception and stakeholder relations.”
Corporate Green Bond Option
Corporate bonds with a focus on green initiatives can give investors a balance of yield while attaining their ESG goals. That said, one fund to consider is the Vanguard ESG U.S. Corporate Bond ETF (VCEB ).
The fund seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index. That index excludes bonds with maturities of one year or less and with less than $750 million outstanding. As of November 27, the fund’s 30-day SEC yield is 4.97%. The average effective maturity is about 10 years, allowing for mostly intermediate bond exposure.
VCEB has a discernible screening criteria, eschewing bonds of companies that the index sponsor determines are involved in and/or derive threshold amounts of revenue from certain activities or business segments. Those include adult entertainment, alcohol, gambling, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear power, genetically modified organisms, or thermal coal, oil, or gas.
Additionally, the index excludes bonds of companies that, as determined by the index provider, do not meet certain standards defined by the index provider with respect to an ESG controversies assessment, as well as companies that do not meet certain diversity criteria.
For more news, information, and analysis, visit the Fixed Income Channel.
