No high premium for ESG bond exposure with this ETF

The growth of environmental, social and governance (ESG) investing has made its way into bond markets, increasing the number of green bond issuances in recent years. As demand increased, prices also increased, excluding some investors from ESG bonds.

According to research by ratings agency Moody’s,” a Financial Times report said.

“Prices have continued to rise as this flood of debt hit the market because investor demand has exploded. Figures from data provider EPFR show flows to ESG bond and socially responsible investment funds are from a net $4.2 billion in 2018 to $102 billion in 2021,” the report added.

However, as emissions have increased, ESG bond prices have fallen. There are other options to consider when gaining exposure to ESG bonds, such as exchange-traded funds (ETFs).

A corporate bond option with ESG

One option for bond investors seeking exposure to ESG bonds who also want the yield that corporate bonds can offer is the Vanguard ESG US Corporate Bond ETF (VCEB). Moreover, the fund does not require a high premium with its low expense ratio of 0.12%.

VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index, which excludes bonds with a maturity of one year or less and less than $750 million outstanding, and is reviewed for certain ESG criteria by the index provider, which is independent of Avant-garde.

VCEB Highlights:

  • Provides debt issues filtered according to certain ESG criteria.
  • Specifically excludes bonds of companies which the index sponsor determines are involved in and/or derive threshold amounts of income from certain activities or business segments related to adult entertainment, alcohol, gambling money, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear energy, genetically modified organisms or thermal coal, oil or gas.
  • Excludes corporate bonds that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG Controversy Assessment Framework, as well as companies that have not at least least one woman on their board.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Alma Ackerman

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