VanEck has refreshed its VanEck Vectors Green Bond ETF (GRNB US), changing the fund’s underlying index and lowering its expense ratio.
The proceeds of green bonds are used to finance projects expected to have a positive environmental impact.
As of 1 September 2019, the ETF switched from tracking the S&P Green Bond Select Index to the S&P Green Bond US Dollar Select Index.
The new index focuses solely on US dollar-denominated green bonds, whereas the previous index included bonds issued in any G10 currency.
Bonds are generally considered to be ‘green’ if the proceeds from the bond’s issuance are specifically used to finance projects that are expected to have a positive environmental impact.
Similar to the old index, the new index uses data from the Climate Bonds Initiative, a non-profit organization working to promote large-scale investment in the low carbon economy, to determine whether a bond can be labelled green.
Bill Sokol, ETF Product Manager at VanEck, commented, “Interest in sustainable investing continues to grow, as investors increasingly recognize the long-term impact that risk factors such as climate change may have on their portfolios.
“Green bonds may be an attractive environmental, social, and governance (ESG) solution for fixed income investors because they are a straightforward and direct way to invest sustainably. Investors can incorporate US dollar-denominated green bonds into a core fixed income allocation without sacrificing yield or adding currency risk.”
Lower fees
The expense ratio for the ETF has also been reduced from 0.30% to 0.20%. This is the second time VanEck has lowered the fund’s fees, having cut the expense ratio from 0.40% to 0.30% in September 2018.
The move should enable the fund to remain competitive with BlackRock’s iShares Global Green Bond ETF (BGRN US), which launched in November 2018 and has an expense ratio of 0.20%.
Both the VanEck and BlackRock funds currently house around $25 million each.
The iShares Global Green Bond ETF provides broad exposure to the green bond market by tracking the Bloomberg Barclays MSCI Global Green Bond (USD Hedged) Index. The index consists of bonds from governments, supra-nationals, and corporations from both developed and emerging markets. Bonds may be issued in any currency with the index hedging any foreign currency exposure back to the US dollar.
Eligible securities do not necessarily need to be formally labelled as ‘green bonds’ but must pass an evaluation by MSCI ESG Research that is based on four criteria in accordance with MSCI’s Green Bond Principles. These criteria focus on the actual use of proceeds (within eligible environmental causes) as well as the existence of processes which ensure the correct allocation, management, and reporting related to the use of proceeds.