GRNB Meets Growing ESG Demand as First U.S.-Listed Green Bond ETF
GILLIAN KEMMERER: Welcome to Asset TV. I’m Gillian Kemmerer. Today VanEck is ringing the closing bell here at the New York Stock Exchange in celebration of the debut of the first Green Bond ETF (GRNB) in the United States. I’m joined by Ed Lopez, the Head of ETF Product Management at VanEck to tell us more about the debut. Ed, why was the VanEck Vectors Green Bond Fund launched?
ED LOPEZ: At VanEck we have a long history of developing forward thinking and intelligently designed ETFs that we think add value to an investor portfolio. Whether it is improving the way investors access core areas of the marketplace or simply providing access to new and evolving areas of the market. The purpose of our new Green Bond ETF is to provide access to a new segment of the market for which there is great deal of demand. To put this in perspective, just as financial markets evolve, so do investor values and preferences.
We are seeing a mind shift in the investment landscape in terms of investor preference towards ESG-type investing [environmental, social and governance] or investing that has some kind of positive societal or environmental impact. For instance, the US SIF, which is the Forum for Sustainable and Responsible Investment, recently released its 2016 biannual report, which indicated that assets tied to ESG strategies eclipsed $8.2 trillion in the U.S. in 2016. Compared to 2014, this represents a 33% increase. Globally, at the end of 2014 assets tied to ESG strategies were $21 trillion. Clearly the demand from investors to direct funds towards impactful causes is there. An outgrowth of this demand has been the green bonds market, which now at $200 billion in total size, reflects a doubling of growth of over the last couple of years, each year; and the market is expected to double again this year.
KEMMERER: This market is certainly an area of growing investor interest. Can you explain how green bonds are evaluated and what standards are used?
LOPEZ: Perhaps the first place to start is to talk about what defines a green bond. A green bond is essentially a bond, like any other conventional bond, except that it has this green bonus which requires funds to be directed towards green projects. A green project can cover a number of different areas or themes, but could includes projects that address energy generation, whether from solar or wind, or energy efficiency buildings, LED lighting, other energy efficiency technologies, and water conservation. Historically, in the early years of the green bond market, there were not any clear guidelines in terms of what really constituted a green bond. But in 2014, market participants came together and developed the Green Bond Principles, which established basic guidelines and standards for assessing new issues in the green bond market. Today, we are moving toward a single standard that can be applied to new green bond issues. And the index that we follow, or that the ETF GRNB follows, is the S&P Green Bond Select Index. And it will include only labeled Green Bonds that have been independently verified and assessed by the CBI, which is the Climate Bond Initiatives. It’s a non-profit investor oriented group that reviews the Green Bond issues and make sure that they adhere to the Green Bond principles.
KEMMERER: ESG investing has certainly moved from a niche to a mainstream strategy. One of the things that exemplifies this trend is Apple’s recently issued green bond, tell us more about that?
LOPEZ: Yes, it is really cool, given that Apple is a corporation, and not a sovereign player or a supranational. Corporations get involved in green bonds perhaps out of reputation, perhaps out of their own interest, or perhaps out of client interest. But corporations are definitely getting involved. Apple is one of the most notable ones and last year it issued a $1.5 billion green bond. As part of the Green Bond Principles, reporting is one of the main principles. Apple recently published its annual report on its Green Bond issue [Annual Green Bond Impact Report], and reported on what they had spent money on in 2016. This included $422 million across a variety of projects, for instance, one was on energy efficiency. Apple’s headquarters in Cupertino will be powered 100% by renewable energy. Your FaceTime, iChat, and Messenger apps and the cloud system, for example, are all powered by a solar farm. One of the coolest projects Apple has developed is a line of robots called “Liam”, which disassemble iPhones at the rate of 1.2 million iPhone 6s a year. Liam helps retrieve and save certain key materials like rare metals or aluminum or gold, so they can be reused and then don’t have to be mined out of the earth.
KEMMERER: That’s very interesting. For any advisor or investor that wants to incorporate some kind of green strategy along these lines, or specifically this new Green Bond ETF, how would you advise them to fit it into a larger investment portfolio?
LOPEZ: The most direct reason to invest in GRNB is if you want to green your portfolio. To date there really have not been many good options for regular investors to access fixed income ESG strategies or sustainable strategies. VanEck Vectors Green Bond ETF is a very direct way to green your portfolio. You can also consider it from just a fixed income standpoint, given that GRNB invests in bonds. For all intents and purposes, and all else being equal, you can get similar yield and maturity with the added green benefit. The ETF’s underlying index [the S&P Green Bond Select Index, SPGRNSLT] provides exposure to a global portfolio of green bonds. It is diversified across different currencies, different countries, different sectors, and it is primarily investment grade. We believe that it fits very well in the global aggregate bond allocation an investor might have. Alternatively, if you are more U.S. oriented investor GRNB may also offer some diversification benefits. But the main thing to take away is that adding green bonds to your portfolio doesn’t mean you have to sacrifice risk and return. We like to say that you can add green bonds and succeed in having income with impact.
KEMMERER: I think this a great place to end. Congratulations again, and enjoy ringing the closing bell.
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