Societe Generale-owned asset management firm Lyxor and US investment firm VanEck have launched the world’s first green bond exchange traded fund (ETF) within days of each other on the Euronext exchange and NYSE Arca exchange.
Lyxor launched its Green Bond UCITS ETF last week on 2 March, while VanEck followed suit on Monday 6 March with its own green bond. These are the first funds made to trade on stock exchanges that are made up solely of green bonds and that have been judged to meet the minimum criteria of the Climate Bonds Initiative (CBI).
“It is the democratisation of the green bond market. Finally, we have something that gives retail investors access to the market,” the initiative’s chief executive officer Sean Kidney told Development Finance, noting that ETFs account for the biggest slice of the bond market.
Lyxor’s new ETF provides access to a portfolio of 116 euro and US dollar investment-grade green bonds through the Solactive Green Bond EUR USD IG Index. Climate Bonds Initiative checks each bond to ensure compliance with the Climate Bond Standard framework, which stipulates at least 12 months to maturity per instrument, as well as US$300 million or equivalent in euros outstanding, in order to fully create an investable market.
VanEck’s Vectors Green Bond ETF aims to track the performance and yield characteristics of the S&P Green Bond Select Index. To be included in the Fund’s underlying index, a bond’s issuer must clearly disclose the rationale for the issuance, such as the use of proceeds, and the bond must be labelled green by Climate Bonds Initiative.
“We both launched the funds in pretty close succession. It’s a sign that the green bond market is attracting interest from a wide group of investors,” said Arnaud Llinas, head of ETFs and indexing at Lyxor.
“Until now, investors have had limited options for efficiently accessing ‘green’ fixed income exposure,” said Ed Lopez, head of ETF product management and marketing at VanEck.
“We believe there’s demand for green bonds from ESG-focused investors, but there may be appeal to traditional fixed income investors as well. Green bonds are simply conventional bonds with an environmentally friendly use of proceeds. So, global bond investors can make an allocation to green bonds without significantly altering the risk and return profile of their portfolio.”