One of the hot growth areas of 2016 was ETFs constructed using environmental, social and governance (ESG) criteria, so it’s not exactly a shock to see that trend get rolling in the fixed-income space. Today, VanEck is rolling out the first-ever U.S.-listed green bond ETF on the NYSE Arca exchange. The VanEck Vectors Green Bond ETF (GRNB) comes with an expense ratio of 0.40%.
In the broadest sense, green bonds are bonds that are intended to finance environmentally friendly projects, according to a definition from S&P Dow Jones Indices. And a January Reuters article said that the volume of such bonds specifically targeting climate-change-related projects came close to doubling in 2016, with the overall green bond market growing by more than $80 billion.
Separately, a report from the Organisation for Economic Co-operation and Development noted that the “climate-aligned” bond market had a total value of $600 billion as of June 2015.
Classifying As 'Green'
GRNB tracks the S&P Green Bond Select Index, a subindex of the broader S&P Green Bond Index, which covers a wide variety of debt securities. According to the methodology, for a bond to be included in the broad index, it must be designated as “green” by its issuer, with reasons clearly articulated, and it must be classified as “green” by the Climate Bonds Initiative, a nonprofit organization that looks to encourage investment in climate change solutions.
Among other differences from the broad index, the subindex underlying GRNB requires that bonds be issued in G10 currencies, although they may be issued in any market. And while the broad index requires component bonds have at least one month to maturity at rebalancing, the subindex requires 24 months to maturity. The subindex’s methodology caps individual issuers at 10% of the index, and the high-yield portion of the index at 20%.
GRNB’s prospectus notes that the fund’s index includes 189 bonds from 99 issuers, with a weighted average maturity of 7.3 years. In contrast, the broad index includes some 1,700 components, but has a similar maturity of 7.79 years.
Contact Heather Bell at [email protected].