How green are your bonds?
Look at your investment account’s carbon footprint
If you really want to make an environmental impact with your investment dollars, buy green bonds. These securities fund projects that help the environment, delivering measurable outcomes without sacrificing returns you might earn from traditional bonds.
And they are growing like wildflowers. Last year, the global market for green bonds — a fixed-income sector that’s just over 10 years old — surpassed the $1 trillion mark, putting it on par with the U.S. highyield corporate debt market, says Vishal Khanduja, manager of Calvert Green Bond. This year, the green bond market could top $2 trillion.
Who’s issuing these bonds? Corporations, municipalities and even governments.
But picking individual bonds on your own can be problematic. For starters, there can be some confusion as to a bond’s particular shade of green. By definition, green bonds make positive environmental impacts. Social bonds, often lumped with green bonds, have community-oriented goals, such as affordable housing. And sustainable bonds provide both social and environmental benefits.
But it’s best not to get too caught up with the labels because there’s an even bigger market of unlabeled bonds that make worthy, impactful investments, says Stephen Liberatore, lead manager of TIAA-CREF Green Bond fund.
It helps to go with an experienced bond picker if you’re investing in this sector, but fund choices are slim. Here are four of Kiplinger’s favorites:
Brown Advisory Sustainable Bond (symbol BASBX):
Thomas Graff and Amy Hauter invest in a mix of bonds that finance projects that make a positive impact in one of three areas: health and well-being, economic development and social inclusion, or the environment.
Calvert Green Bond (CGAFX): For every $1 invested in this fund, 38 cents goes toward renewable energy and projects that boost energy efficiency, 22 cents finances green-building retrofitting or construction, and 8 cents backs low-carbon transportation, according to the fund’s fact sheet. The fund takes extra steps to verify the impact of each security it considers, says fund co-manager Khanduja.
Domini Impact Bond (DSBFX): Green bonds make up just 7% of Domini Impact Bond. Manager Campe Goodman, of sub-adviser Wellington Management, invests across a range of themes, including access to housing, community development and health. A sustainability bond from the nonprofit BlueHub Loan Fund, for instance, finances projects that generate economic opportunity and stability in low-income communities.
TIAA-CREF Green Bond (TGROX): Green investing is “still so subjective,” says lead manager Liberatore. In Paris, for instance, nuclear power is considered a clean energy, but other parts of the world might disagree. “What each investor wants varies, so we follow our own approach.”
He and Jessica Zarzycki buy mostly high-quality bonds that deliver a direct and measurable environmental effect. Not every bond in the fund is labeled green, but all make an impact.