State Street Global Advisors this week launched its High Quality Green Bond strategy, giving investors a way to direct fixed-income investments to global climate solutions.
Issued primarily by the World Bank, European Investment Ban, and other supranational and multilateral development banks, green bonds allocate the proceeds of the bond offering to fund environmentally beneficial development projects.
State Street officials said that in the past two years, the nascent green bond market from these issuers has grown from $1 billion to $5 billion outstanding. Overall, the estimate from all issuers of green bonds is approximately $12 billion.
“Investment managers are being asked more frequently by their clients to consider sustainability and environmental factors in their approach to the market,” Chris McKnett, State Street’s head of environment, social and governance investing, said in a statement. “The development of a green bond strategy as a complementary solution to our other ESG investment offerings was driven by increased market demand amongst investors.”
The High Quality Green Bond Strategy seeks to approximate the duration of its duration benchmark -- the Barclays Capital U.S. Treasury Index -- through investments principally in green bonds and other debt instruments.
State Street Global Advisors said it will primarily invest in green bonds issued by supranational or multilateral development banks. These green bonds have similar financial features to standard bonds issued by these same organizations, are of high credit quality and come from reputable issuers that are backed by large balance sheets and known institutions, the firm said.
Eligible green bond issuers undertake extensive due diligence with the aim of financing projects that provide positive economic and environmental benefits. Projects financed by green bonds generally fall into one of two categories: those seeking to mitigate climate change or projects seeking to adapt to its effects.
"With the immense amounts of financing needed for countries to support their climate mitigation and adaptation activities, initiatives like green bonds that help raise funds from the private sector and increase awareness for these challenges are vital,” Andrew Steer, Special Envoy for Climate Change, World Bank, said in a statement. “We welcome SSgA's efforts to provide their clients with fixed income products that help raise financing for climate solutions, and are happy to have played a catalytic role to the growth of the green bond market."