2626 KIPLINGER’S PERSONAL FINANCEKIPLINGER’S PERSONAL FINANCE^ 04/202004/2020
M
oney is flooding into
so-called green bonds,
debt that raises cash
exclusively to pay for environ-
mentally friendly activities and
projects. It’s a young market, just
over 10 years old. But growth has
accelerated in recent years in part
because of a set of best-practice
principles developed in 2014 by
the International Capital Markets
Association.
The green bond principles
laid out what issuers need to do
to issue a green bond, what kinds
of projects are eligible, and what,
when and how results need to
be reported (the bonds are sup-
posed to have a measurable im-
pact). “It’s about transparency,
reporting and what the bond is
financing,” says William Sokol, a
VanEck product manager. “Inves-
tors know they’re financing green
projects, but they’re not taking
on any extra risk compared with
a non-green bond from the same
issuer.”
A record $271 billion in green
bonds was issued in 2019 by
corporations, financial agencies
and sovereign nations (or nation-
groups, such as the European
Union), pushing the outstanding
market of debt that is labeled
green to nearly $1 trillion. Citi
offered its first green bond in
2019, a $1.1 billion issue to finance
environmental strategies such
as wind energy projects, a solar
company initial public offering,
and loans to build affordable
housing that is LEED-certified—a
globally recognized eco-friendly
building certification system.
Fannie Mae has issued greencurrency swings. And all bonds
in the fund are either branded
“green” or meet standards set
by financial firm MSCI for envi-
ronmentally minded bonds.
The ETF’s 0.78% yield is under-
whelming, but it’s no less than
a traditional global bond fund
would yield, as measured by the
Bloomberg Barclays Global Ag-
gregate hedged index.
VANECK VECTORS GREEN
BOND (GRNB, $27, 0.20%),
launched in 2017, yields a more
robust 2.40%. One of the ETF’s
top holdings, a Boston Properties
bond, financed the construction
of Salesforce Tower in San Fran-
cisco, a platinum-certified LEED
building that features geother-
mal cooling, wind power gener-
ated by four wind turbines, and
a water-recycling system that
saves more than 7.8 million gal-
lons of water every year.
TIAA-CREF GREEN BOND
(TGROX, EXPENSE RATIO 0.80%)
launched in 2018. But lead
manager Stephen Liberatore
has been picking socially and
environmentally oriented bonds
for more than a decade. He and
Jessica Zarzycki invest mostly in
high-quality, dollar-denominated
bonds that deliver a direct and
measurable environmental im-
pact, using a framework that
Liberatore created with his team
in 2007. “We focus on transpar-
ency and disclosure,” he says.
The fund’s investments fit one
of two broad themes: climate
change and renewable energy,
or natural resources. In its latest
impact report, Nuveen’s TIAA-
CREF stated that the fund’s
$25 billion in investments have
powered 71.7 million homes for
one year with renewable energy
and saved nearly 5 billion gallons
of water, enough to fill more than
7,300 Olympic-size swimming
pools, among other measures.
The fund yields 2.21%.INVESTING
Sustainable Income
bonds to pay for projects to make
multifamily developments more
energy efficient.
Adherence to the green bond
principles is voluntary for bond
issuers. But the market can act
as a regulator. If a firm issues a
green bond that investors decide
isn’t eco-friendly enough, fewer
buyers will step up.
That’s what happened to
Teekay Shuttle Tankers, a subsid-
iary of Teekay Offshore, in 2019.
The Bermuda-based owner and
operator of ships that transport
oil from offshore drilling sites had
planned to issue $150 million to
$200 million to build four energy-
efficient tankers, but many buy-ers balked. “It was viewed as
enabling a dependence on fossil
fuels, which is what we’re trying
to get away from,” says Sokol.
In the end, the firm issued just
$125 million in green bonds.
Because green bonds have a
short history, many of the funds
that focus on this niche are new,
too. ISHARES GLOBAL GREEN
BOND (SYMBOL BGRN, PRICE $55,
EXPENSE RATIO 0.25%) opened in- The exchange-traded fund
invests in investment-grade sov-
ereign and government-related
debt, corporate bonds, and secu-
ritized IOUs denominated in local
currencies in countries around the
world. The fund hedges against
Green bonds are making an impact on the environment.