Green Bonds Versus Other ESG Strategies
Green bonds are defined by the projects they finance with a focus on environmental impact. ESG-scored strategies, the score represents a broader assessment of the issuer's activities and their environmental, but also social and governance indicators. An ESG score is an opinion of the provider of that score and we find that they can vary widely. In fact, a study by MIT found2 that among the top five ESG research providers, there's only about a 10 to 15% correlation of ESG scores. That's reflective of the different methodologies they use and the inherent subjectivity involved with ESG-scored strategies.
We think green bonds can be a solution to this problem. They are less subjective because they're defined by the projects they finance rather than the broader activities of the issuer. They're also more direct because they allow investors to direct capital to projects that have a positive environmental impact. We would say they're more forward looking as well because it's not based on a backwards looking assessment of ESG data, but rather on projects that will have a future benefit.
At VanEck, we focus on providing access to forward-looking investment strategies. Hand-in-hand with that is our philosophy on ESG, which is that ESG factors are integral to the investment process because of the associated risks and potential impact on long-term returns. On the active side, our investment teams analyze these factors and actively engage with companies to identify issuers that could provide better long-term investment outcomes for investors. On the passive side, one way we carry out this philosophy is through product development. We ask: "What is the world going to look like in 10, 20 years? What are the trends that are shaping or going to shape the future economy?"
For example, we know about the transition that is happening towards a low-carbon economy. And we also know about the huge need to finance that transition. So we launched GRNB, recognizing that huge growth that is expected in this market. GRNB fits in with our general ETF philosophy of providing efficient access, transparency, and a pure exposure. It also aligns with our ESG philosophy, in that incorporating ESG factors into a portfolio, whether through active or passive strategies, can lead to better long-term investment outcomes.
1Climate Bonds Initiatives
2Climate Bonds Initiatives
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