Green bonds: What’s in your wallet/portfolio?

October 2019—Put your money where your values are. You probably donate to causes and recycle to make the world better but do you have investments that are making the world worse? Unless you are pursuing sustainable investing, the answer is probably, Yes. We now have decades of research done by different groups that show that these investments do as well or better than a standard portfolio.

According to the US SIF Foundation’s 2018 Report on US Sustainable, Responsible and Impact Investing Trendsas of year-end 2017, more than one out of every four dollars under professional management in the United States—$12.0 trillion or more—was invested according to SRI strategies (Source)

One newer tool to align your values with your portfolio are Green Bonds. Most of these focus on climate change but there are also sustainability and social bonds. The field is likely to grow, but like any new field, what qualifies has been a big vague. But now there are standards set out by the International Capital Market Association. The issuance of green bonds and social bonds has been expanding at an exponential rate..

Social and sustainability bond issuance rose to a record level in the second quarter, with a combined $16.7 billion of issuance, the agency observed. The $30 billion of combined first-half social and sustainability bond issuance represents a 103% increase over the same period last year.

Because these are new, there are some risks. You might give up a bit of return on these bonds and there’s less liquidity. This article explains the pros and cons. This Yale study examined the effect of environmental, social, government (ESG) on bonds and found, “We find that a positive tilt to ESG factors resulted in a small but steady performance advantage.“