June Commentary

• • The assets of dedicated green bond funds, a segment consisting of seven active and passively managed mutual funds as well as ETFs, declined by $50.7 million in June, a month-over-month drop of 3.4%, to end the first six months of the year at $1.4 billion in assets.  Refer to Chart 1.  This was the fourth monthly decline in the six months since the start of the year.  Capital depreciation in June combined with net outflows accounted for the decline, with outflows registering about $17 million.  This was almost entirely attributable to institutional redemptions from the Calvert Green Bond Fund I (CGBIX) in the amount of about $21.2 million while the recently rebranded Franklin Municipal Green Bond ETF (FLMB) added $5.7 million¹.    
  • Against a backdrop of declines in government and corporate bond values as markets moved to price in significant further increases in interest rates on top of what has already been announced, green bond funds posted an average drop of 2.49% versus -1.57% recorded by the Bloomberg US Aggregate Bond Index².  Returns ranged from -1.85% registered by the TIAA-CREF Green Bond Fund Institutional Shares (TGRNX) to a low of -3.82% attributable to the Mirova Global Green Bond Fund A (MGGAX) that was likely impacted by the rising value of the US dollar.  Year-to-date and trailing twelve-month results also suffered significant declines, with green bond fund averages dropping 11.60% and 11.96%, respectively.  Refer to Table 1.  
  • Green bond issuance in June ticked up to $47 billion but trailed the $56.3 billion recorded in June 2021, according to preliminary data from the Climate Bond Initiative.  Year-to-date, preliminary issuance stood at $218.1 billion versus $243.8 billion during the first six months of the prior year. Refer to Chart 2. 
  • At the end of June, the International Capital Markets Association (ICMA) announced new and updated publications and resources to help stakeholders and capital market participants navigate the framework of sustainable finance, including new definitions for green securitization, an updated registry of key performance indicators for sustainability-linked bonds, a new registry containing methodologies for climate transition finance, new metrics for reporting of both green and social projects to assess the impact on the environment and natural resources and the impact on certain social indicators and target populations, respectively, and enable improved disclosures regarding such projects, updated guidelines for external reviews of bonds issued under the Green Bond Principles (GBP), guidance for providers of green, social and sustainability bond index services, and updated mapping to the United Nations’ Sustainable Development Goals, tying the GBP to global ESG goals.

¹Franklin Templeton rebranded the Franklin Liberty Federal Tax-Free ETF as of May 3rd and shifted $101.9 million into the renamed Franklin Municipal Green Bond ETF (FMLB) as well as the green bonds segment.

²Results are the same whether the Franklin Municipal Green Bond ETF is included or excluded.