Is More Growth Expected from Green Bonds?
More growth expected
As encouraging as the continued growth of the market is, the green bond market must continue to scale up significantly to meet the climate objectives under the Paris Agreement and to fund more sustainable development. The challenge is substantial: it is estimated that $93 trillion of infrastructure investment is needed in the next 15 years to transition to a low-carbon economy.1 Green bonds are well suited to play a role given the long-dated nature and fixed cash flows of most projects, and because of the liquidity and size of the global bond market.
Green bonds have been recognized as an important piece in the transition to a low carbon economy with global climate leaders calling for $1 trillion of annual issuance by 2020.2 We expect issuance to continue to grow, and as a result, for green bonds to have a larger role within investor portfolios.
VanEck Vectors Green Bond ETF (GRNB) is the first U.S.-listed fixed income ETF to provide targeted exposure to the fast-growing green bonds market. GRNB seeks to track the performance and yield characteristics of the S&P Green Bond Select Index (SPGRNSLT), part of a suite of green indices introduced by S&P (SPY) (SPX-Index).
More growth expected from green bonds
Green bonds play a vital role in the transition to a low-carbon economy and fulfillment of the Paris Agreement’s aim to begin this initiative by 2020. Because green bonds finance a variety of environmental projects, proponents of the green bonds market note that it should see a robust growth trend. These bonds could eventually fund the majority of the investment in infrastructure required for this transition.
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Looking at the green bonds market growth this year, we see an upside potential for green bonds in the coming years. The chart above shows the growth expected from green bonds in 2017.
In a June 28, 2017, article in Nature, Christiana Figueres and colleagues stated that to mitigate climate-related risks, the issuance of green bonds should see a tenfold increase over the $81 billion of green bonds issued in 2016.
The government also plays a significant role in expanding the green bond market. As we discussed previously in this series, labeling green bonds would be essential to investors, and government standardization and policies can increase the issuance of labeled bonds. The government can support the growth of the green bond market by adequately utilizing public capital in funding environmental projects.
Investors interested in green bonds exposure can consider the VanEck Vectors Green Bond ETF (GRNB), which tracks the performance of the S&P Green Bond Select Index. Green bonds offer investors an opportunity to hedge their portfolios against climate-related risks. These bonds also offer the opportunity to earn good returns while contributing to the environment.
To learn more about green bonds, please read Green Bonds: How They Are Painting the Global Picture.