Earlier this week, VanEck announced a 33% fee reduction on the VanEck Vectors Green Bond ETF (GRNB), resulting in a new net expense ratio of 0.20%. That matches the net expense ratio of its sole rival in the green bond exchange-traded fund space, the iShares Global Green Bond ETF (BGRN).

Along with the fee reduction, the VanEck fund also switched its index. Before the index change, there wasn’t much difference between the two products regarding many of the exposures and allocations within their respective portfolios. In addition, they also have similar asset amounts and even their ticker symbols are an anagram of sorts.

But VanEck’s repositioning of its GRNB fund provides more of a contrast with its iShares competitor. That should help investors better differentiate between the two products. More important, though, is the question of whether green bonds are a good deal for investors.

Green bonds are a subset of the wider ESG (environmental, social and governance) movement that is gaining momentum within investment circles.

“When you talk about ESG or SRI [socially responsible investing, or sustainable, responsible and impact investing], there are so many ways you can define that,” says Bill Sokol, ETF product manager at VanEck. “Green bonds are different in that they’re defined by the projects they finance, so you don’t have the subjectivity of assessing the issuers’ broader activities. In this case, it’s based on the positive environmental impact on those projects.”

Green projects run the gamut from alternative energy and sustainable water to pollution control and climate change solutions.

There have been more than $150 billion in new issuance of green bonds this year through August, according to the Climate Bonds Initiative, an international body focused on developing the bond market for climate change projects. That organization says total issuance last year was $168.5 billion, and it estimates the market for new issuance this year will hit $259 billion.

That said, there remains a lack of standardization about what exactly constitutes a “green bond.” The Climate Bonds Initiative is a go-to source for certification standards on climate-related green bonds, while the Green Bond Principles, an effort from the International Capital Market Association, provides guidelines for green bond issuers and offers information for investors. 

GRNB And BGRN

The VanEck Vectors Green Bond ETF debuted in March 2017 as the first green bond ETF. It initially followed the S&P Green Bond Select Index, which is a sub-index of the S&P Green Bond Index. It’s a market value-weighted index measuring the performance of green-labeled bonds issued globally. The fund’s new index is the S&P Green Bond U.S. Dollar Select Index, a sub-index of the S&P Green Bond Index that tracks the performance of U.S. dollar green-labeled bonds.

The changing nature of green bonds made the switch doable, says Sokol, noting that the green-bond market is roughly 65% euro-denominated, which reflects investor demand and issuance in Europe for ESG securities in general. But the dollar-denominated market has grown in recent years, making it feasible to launch a strategy focused just on the dollar portion of that market.

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