The global transition to clean energy technologies should open opportunities for fixed income investors in bond funds that focus on the ESG theme.
The ESG theme hit a zenith in the past few years. But investors may still not know opportunities exist in the space, especially when it comes to fixed income. One thing is certain: Some investors are looking beyond returns and allocating capital to funds that meet their ESG criteria.
“As the global energy landscape evolves, financial investors and corporates are navigating the complexities of the energy transition,” noted multinational services company and Big 4 accounting firm KPMG. “This transformation offers significant investment opportunities, driven by the need to enhance energy efficiency, expand renewable energy capacity, and modernize infrastructure.”
As mentioned, energy efficiency in particular has sparked investment opportunities that are on a positive growth trajectory.
“Sixty-four percent of investors are engaging with a variety of opportunities: 64 percent have invested in energy efficiency technologies, 56 percent in renewable energy, 54 percent in energy storage, and 51 percent in transport and related infrastructure,” it added.
This shift to green energy highlights opportunities in bond funds that emphasize ESG. As mentioned, investors may not be aware that such opportunities exist. That’s especially so for bond funds that allow ESG exposure while also offering yield to fixed income investors. One such notable fund is the Vanguard ESG U.S. Corporate Bond ETF (VCEB ).
Corporate ESG Option
Furthermore, VCEB screens for certain ESG criteria by the index provider. The index excludes 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.
Furthermore, 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.
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