The ESG bond market looking forward to another strong year

DDespite regulatory hurdles in 2021, environmental, social and governance (ESG) investments have proliferated with more ESG bond issuance, and this strength is expected to continue into 2022.

Refinitiv data shows global green bond sales are expected to reach $ 1 trillion this year.

“A few years ago, the trillion mark seemed unachievable,” said Julien Brune, head of DCM solutions and consulting at Société Générale. “This is a historic figure showing an extraordinary increase in investor and issuer awareness of the importance of ESG issues.”

The same data from Refinitiv also shows that bond volume will reach $ 2 trillion if the ESG bond market can replicate what it did last year. This forecast is supported by banks, such as BNP Paribas, which expects the volume to reach $ 880 billion.

“We are seeing an extremely strong appetite for sustainable finance on the part of investors. The opportunity is there for 2022 to be a pivotal year; more than 40% of global assets are on net zero trajectories and the evolution of EU taxonomy will increase the base of assets eligible for green emissions ”, said Constance Chalchat, Head of Global Sustainability Markets at BNPP , which expects that “sovereign and corporate actions on the energy transition [to] promote the growth of new green assets.

Exposure to ESG bonds with a corporate touch

As the trend towards more green bonds by US companies continues to gain momentum, bond investors can join the action with the Vanguard ESG U.S. Corporate Bond ETF (VCEB). Bond investors can combine corporate bond yield and ESG principles with the VCEB.

According to its fund description, VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index. The index excludes bonds with a maturity of one year or less and less than $ 750 million outstanding, and is selected for certain ESG criteria by the index provider, which is independent of Vanguard. .

Highlights of the VCEB:

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

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