How green is green?

That’s the question many clients want their advisors to answer when they consider investing in green bonds, a growing channel in the fixed-income market, said William Mock, lead member of the portfolio management team for fixed-income and money market funds at Shelton Capital Management based in Denver.

Green or environmental, social and governance (ESG) investing in equities is almost mainstream at this point, but questions remain about fixed-income green investments, whether it involves government bonds or private corporate bonds, Mock said.

Advisors need to be able to outline the possibilities for clients who want to explore this market.

The “greenest” bonds are those that fund projects that have a positive impact on society, and they often involve new industries or innovative solutions to old problems.

The second tier of green bond investments would involve bond portfolios with harmful or unsustainable investments removed from them.

And the third tier is bonds that fund projects meant to improve society generally, such as education or infrastructure projects, Mock said.

“This is a relatively new field. A lot of bonds sold in the past, before there was a ‘green’ label, would be considered green if they were issued today,” he said.

Green bonds should be put under the same scrutiny as any other bond and not be given any leeway just because they promote ESG investing, Mock added. “As an investment manager, I don’t give any bonds a break in due diligence just because they are green.”

Shelton Capital Management has been a third-party manager of green bonds for advisory firms since 2012. Mock manages investments of about $130 million in green bonds.

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