Renewable ETFs and Green Bonds: Are they for me? October 31, 2022

Read the related article about Renewable Energy and Investment Options here!

What is renewable energy ETF?

Investors may also consider investing in renewable energy via Exchange Traded Funds (ETFs), as they are more diversified and involve lower risks. With the rise of investment interest in this sector, investors can avoid the risk of inaccurate stock picking. The main advantage of ETFs is that they are a hybrid between stocks and unit trusts. Investors can trade the fund like a stock on the exchange with the advantage of a professional picking the right stocks for them.

What to invest in?

iShares Global Clean Energy ETF

The fund’s objective is to track the investment results of global equities in the clean energy sector through the S&P Global Clean Energy Index. Hence, the fund seeks to gain exposure to companies in solar, wind, and other renewable sources. According to the key facts of the fund, its net assets as of 12 Sep 2022 were at USD 5.86B, making it the largest clean energy ETF by BlackRock. As of September, the fund had 98 holdings in the clean energy sector across various listed clean energy companies with the top 10 holdings of the fund as shown below. [iShares Global Clean Energy ETF | ICLN. (n.d.)]

Renewable ETFs and Green Bonds: Are they for me?

Source: Fund’s characteristics and top 10 holdings [iShares Global Clean Energy ETF | ICLN. (n.d.).]

Green Note and Green Bond

What are green bonds?

Another alternative to investing in renewable energy is through the purchase of green bonds. This financial instrument enables corporations to raise capital for new and existing projects that have environmental benefits. It is meant to encourage issuers who are developing environmentally sound and sustainable projects that result in a net-zero emissions economy. Due to the growing attention in climate change, green bonds have become a popular form of funding, bringing with it transparent green credentials and transparency on the use of proceeds. The bond may even come with a tax incentive which makes it attractive to investors.

In 2020, the value of green bonds issued amounted to almost USD 270 billion, as reported by the Climate Bond Initiate. Since 2015, the accumulated green bonds issued are worth more than USD 1 trillion. The largest issuer of green bonds internationally is the World Bank with close to USD 14.4 billion of green bonds issued, spread across renewable energy & efficiency, clean transportation and agriculture & land use.

Green bond issuers

The strong demand for green bonds is most evident in the recent issue by Frasers Property, a 5-year green note that pays a coupon rate of 4.49 percent. Initially issued and valued at SGD 420 million, the bond has been oversubscribed due to strong demand, at a rate of 1.64x, resulting in SGD 689.3 million worth of subscriptions. For the 6 days that it was open for subscription, it was 1.48x oversubscribed for its Initial Public Offer (IPO) and 2.04x oversubscribed for the initial placement. This prompted Frasers Property to increase the bond size from SGD 420 million to SGD 500 million. [Lim, J., & Ting, Y. H. (2022, September 16)]

As a show of strong commitment to fight climate change, the Monetary Authority of Singapore (MAS) announced in August, that it plans to issue a SGD 2.4 billion 50-year sovereign green bond with an effective yield of 3.04%. Close to 97.9% (SGD 2.35 billion) of the bond will be issued to institutional and accredited investors while the remaining 2.1% (SGD 0.05 billion) will be offered to individual investors. According to MAS, the use of green bonds or green financing is meant to act as an “enabler of global efforts to mitigate climate change”. [Singapore Prices S$2.4 billion 50-year Inaugural Sovereign Green Bond; Public Offer now Open for Individual Investors. (n.d.)]

Another noteworthy green bond is issued by Sembcorp Industries, priced at 2.45% yield with maturity in 2031 for an amount of SGD 400 million. In a scenario similar to most bond issues, more than 90% of the green bond is subscribed by institutional investors in the Asia-Pacific region and the net proceeds from the subscription are used to finance projects in the list of eligible green projects that meet the Climate Bonds Initiative (CBI) technical criteria. [Zhu, M. (2021, June 3)]

What to expect?

Considering the rising demand for green infrastructure, we expect the growing issuance of green bonds to support this movement. Hence, as smart investors, we have to take note of the changing needs of the world and invest in financial instruments that are relevant in the current economy.

Issuer	Size	Yield	Maturity
Fraser Property	S$500M	4.49%	2027
MAS	S$2.4B	3.04%	2072
Sembcorp Industries	S$400M	2.45%	2031

Reference:

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About the author

Tan Jun Sen

Jun Sen graduated from Nanyang Technological University with a Bachelor in Mechanical Engineering and has previously worked in finance related roles dealing with stock analysis. He is trained in SG equities fundamental analysis from past work experience. He believes in value investing and staying invested throughout the high and lows of market cycles.

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