What are green bonds?

According to Climate Bonds Initiative, The green bondss market are has been experiencing tremendous growth. According to Climate Bonds Initiative, it reached a new record with So far in 2021, $391 billion have been issued so far in 2021, already surpassing in green bonds compared the with $297 billion raised in 2020,. This represents a 33% growth, and the year is not over!

What are green bonds?

Green bonds are fixed-income instruments which are used to fund projects that have positive impact on the environment or climate benefits.

Like other bonds, the base principle behind green bonds remains the same. When investors buy green bonds, they are effectively lending money to the company that issued (sold) the green bonds. In exchange, investors receive periodic interest payments in addition to the repayment of the money lent. However, green bonds are used to finance specific environmental projects such as improvements in agriculture, transportation, and renewable energy generation projects.

Back in 2016, development banks were one of the most active issuer (seller) of green bonds, and companies in other industries represented a much smaller portion of the market. This dynamic has shifted since. In 2021, almost a third of green bonds are issued by companies and development banks have taken the backstage. The growing investors’ concerns about the environment have finally pushed companies to take part in the fight against global warming.

Green bonds ETFs are booming

With the rising popularity of green bonds, investors also have a growing choice of ETFs covering the universe. According to Trackinsight’s data, the assets under management of green bonds ETFs has boomed over the past 3 years.

In 2018, there were only two green bonds ETFs available to investors, with no more than 80 million dollars of assets. Today (as of November 2021) assets have been multiplied by more than 20 to reach almost 1.7 billion dollars over 13 ETFs.

Source:Trackinsight, 2021

New green bonds ETFs are launched every year and the trend is accelerating. Investors saw their pool of option grow with six new launches so far in 2021, up from two launches in 2020. Still, the green bonds ETF market is mostly European so far, with 10 of the 13 existing green bonds ETFs domiciliated in Europe. This leaves room for green bonds product development in other regions.

Interested in green bonds? Here are 2 examples of ETFs covering the theme: 

The Lyxor Green Bond (DR) UCITS ETF (CLIM) is the largest green bond ETF in terms of assets. It is built to track the Solactive Green Bond EUR USD IG Index which measures the overall performance of the green bonds market.

The iShares Global Green Bond ETF (BGRN) is the cheapest green bond ETF with a net expense ratio of 0.20%. It is built to track the Bloomberg Barclays MSCI Global Green Bond Select Index. The index measures the overall performance of the investment grade corporate green bonds market.

Find out more about ESG ETFs through our ESG Investing platform. 

Get access to green bonds ETFs available in your region with Trackinsight’s ETF screener.

Want to find more thematic ETFs focused on climate change? Visit our Thematic Investing platform.