Green Bonds: Income with Impact
January 13, 2022
Read Time 2 MIN
Green bonds allow investors to build a sustainable core bond portfolio by directing investment towards projects that have a positive impact on the environment and are aligned with global climate goals. Green bonds are similar to conventional bonds, except that they provide additional transparency and disclosure on the types of projects the bond is financing, and are generally backed by the full balance sheet of the issuer and rank equally to other bonds of the same seniority. Because of these similarities, green bonds allow investors to integrate sustainability without significantly impacting their overall risk/return profile.
Green bonds are increasingly being recognized by corporations, banks and governments as an essential tool to finance climate-related and other environmental projects. The size of the green bond market has increased significantly in recent years, and we believe issuance will scale up massively to finance the projects needed to help transition to a low carbon economy.
Because green bonds are defined by the projects they finance rather than the broader activities of the issuer, they provide a direct and objective approach to sustainable investing, and one that is forward-looking due to the long-lived nature of most projects being financed. Despite the level of disclosure and ongoing reporting that most issuers provide, we believe it’s critical to have an additional layer of review to ensure that a green bond is truly “green.” The Climate Bonds Initiative, a non-governmental organization working towards mobilizing the global debt markets for climate solutions, has developed—with the input of hundreds of technical experts—a project taxonomy that is rooted in climate science and aligned with the objectives of the Paris Agreement. The taxonomy identifies projects and activities needed to deliver a low carbon economy, and also identifies projects that are not aligned with this goal. Assessing green bonds against this taxonomy provides assurance that bonds selected for investment are aligned with the Paris Agreement, and have been analyzed through a rigorous, objective and transparent process by an independent third-party.
VanEck Green Bond ETF (GRNB) provides exposure to bonds that fund projects and activities that positively impact the environment. It includes only U.S. dollar-denominated bonds designated as “green” by the Climate Bonds Initiative.
This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of VanEck. Past performance is no guarantee of future results.
Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.
An investment in the Fund may be subject to risks which include, among others, green bonds, investing in Asian, Chinese and emerging market issuers, foreign securities, foreign currency, credit, interest rate, floating rate, floating rate LIBOR, high yield securities, supranational bond, government-related bond, restricted securities, securitized/asset-backed securities, financial, utilities, market, operational, call, sampling, index tracking, authorized participant concentration, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/discount risk and liquidity of fund shares, non-diversified and concentration risks, all of which may adversely affect the Fund.
Investing in “green” bonds carries the risk that, under certain market conditions, the Fund may underperform as compared to funds that invest in a broader range of investments. Investing primarily in “green” investments may affect the Fund’s exposure to certain sectors or types of investments and will impact the Fund’s relative investment performance depending on whether such sectors or investments are in or out of favor in the market. The “green” sector may also have challenges such as a limited number of issuers, limited liquidity in the market and limited supply of bonds that merit “green” status, each of which may adversely affect the Fund.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com/etfs. Please read the prospectus and summary prospectus carefully before investing.
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