ETFs for Diversified Exposure to Green Bonds
Goldman Sachs has just launched the Goldman Sachs Global Green Bond UCITS ETF (ticker GSGR). The product tracks the Solactive Global Green Bond Select Index, which is a very highly diversified index of green bonds. Officially it cannot have more than 5% in one bond, but the list of holdings shows most of them are well below 1% position sizes. It is comprised of green bonds, issued by entities in G10 countries (which are in fact now 11 countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States).
Public sector issuers of green bonds include supranational organisations such as the European Investment Bank, and the International Bank for Reconstruction and Development, sovereigns such as Government of Belgium, and local governments such as City of Gothenburg in Sweden.
Private sector issuers include Dutch insurers NN and ING, the world’s largest infrastructure manager, Brookfield, Italian bank Intesa Saopalo, Spanish utility Iberdrola, and Danish bank Danske Bank.
There are also a number of issuers in China, including Industrial and Commercial Bank of China, the Province of Guangdong, and the Government of Hong Kong Special Administrative Region. This might be controversial for some investors who avoid China, or claim there are differences between China’s Green Bond Principles, announced in July 2022, and other criteria and labels used to defined “green bonds”. However a global green bond product will have a range of different sorts of green bonds.
The Solactive benchmark makes ESG disclosures, including Greenhouse Gas (GHG) intensity while Social factors disclosures document very small exposure to controversial weapons and tobacco, and ratios of male to female board members.
The ETF is amongst a relatively small number reporting under article 9 of the EU SFDR (Sustainable Finance Disclosure Regulation).
Choice of Green Bond indices – or active management?
Other green bond ETFs are managed by iShares, Amundi, Franklin Templeton, VanEck, and Horizons.
Amundi’s The Lyxor Green Bond (DR) UCITS ETF tracks a different index form Solactive: the Solactive Green Bond EUR USD IG index, which is restricted to investment grade bonds.
Others track indices from various providers. iShares tracks Bloomberg MSCI USD Green Bond Select Index. VanEck tracks the S&P Green Bond U.S. Dollar Select Index, as does the Horizons product, which is listed in Canada. This index includes only bonds classified as “green” by the Climate Bonds Initiative.
Franklin Templeton’s product, Franklin Sustainable Euro Green Bond UCITS ETF, is in fact actively managed and does not track an index, though it specifies Linked Bloomberg Global Aggregate EUR Green Bond Index as a benchmark. The Franklin product has a slightly broader mandate in that 75% is invested in green bonds, but 25% can be invested in “climate aligned” bonds. It is still quite highly diversified with 149 holdings, versus 300 or more for the index trackers.
Expense ratios range between 0.18% for the Franklin product to 0.20% for VanEck, 0.22% for Goldman Sachs, 0.30% for Amundi. With most of the expense ratios pretty similar, investors may wish to research the differences between the underlying indices, to work out what is the best fit for their investment objectives, and their own ESG philosophy or policies.