Broadly speaking, equity-based strategies fueled the initial boom in environmental, social, and governance exchange traded fund proliferation. As a result, criticism lobbed at ESG investing has focused on equity-based ESG funds.
In what could be good news for funds such as the Calvert Ultra-Short Investment Grade ETF (CVSB), bond issuers are paying attention to the vitriol aimed at the ESG/equity combination and are looking to avoid a similar fate.
One way of looking at that is the ESG bond market is maturing. In the process, it’s looking to avoid some of the hoopla that recently plagued market stock-based ESG ETF expansion. That could prove wise at a time when investors and regulators are applying more scrutiny to the ESG label.
CVSB Right Bond ETF at the Right Time
In addition to signs the market is maturing, criticism aimed at comparable equity strategies is paying off in another way. Debt issuers are being more thorough in evaluating whether or not upcoming issues can credibly be deemed ESG.
That’s meaningful to investors considering CVSB because the Calvert ETF allocates more than 61% of its roster to investment-grade corporate debt. Whether it’s junk bonds or investment-grade credit, corporate issuers are very scrutinized when it comes to ESG claims. That is to say, in this environment, they need to ensure there’s substance to those claims.
“To some extent some US issuers are more trepidatious because of the pushback,” said Melissa James, vice chairman of global capital markets at Morgan Stanley, in an interview with Bloomberg’s Caleb Mutua. “Had things gone unfettered, it would’ve gotten a little too frothy. The market is maturing.”
There are good reasons for bond issuers to not take liberties when it comes to applying the label. Others include the aforementioned scrutiny and increasing politicization of ESG investing. Fortunately, the CVSB methodology, including active management, steers investors clear of those potential pitfalls.
“The so-called greenium, which refers to the price advantage that companies can reap when borrowing in the ESG market, has largely evaporated amid the political pressure, hurting sales of the bonds in the US. Corporations have raised about $31 billion in dollar-denominated ESG bonds this year through August 17, a 53% slump from the same period last year,” according to Bloomberg.
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