Environment, social and governance (ESG) continues to grow and this year the space expands to municipal bonds. Real estate prices have soared in recent years, creating a need for affordable housing, which is fueling ESG and municipal growth.
“ESG is poised for another record year of new issuance in the $4 trillion municipal bond market as state and local agencies look to Wall Street for help in dealing with the crisis. affordable housing,” a Bloomberg Law article noted.
“Sales of municipal bonds with a green, social or sustainability label rose 2.6% this year, bucking the roughly 12% decline in the overall market, according to data compiled by Bloomberg. muni could surpass last year’s record to reach more than $60 billion by the end of 2022, according to projections by S&P Global Ratings released in February.
Two options for ESG and Muni exposure
One option for ESG muni exposure is the Vanguard ESG US Corporate Bond ETF (VCEB). Moreover, the fund does not require a high premium with its low expense ratio of 0.12%.
VCEB seeks to track the performance of the Bloomberg MSCI US Corporate SRI Select Index, which excludes bonds with a maturity of one year or less and less than $750 million outstanding, and is reviewed for certain ESG criteria by the index provider, which is independent of Avant-garde.
- Provides debt issues filtered according to certain ESG criteria.
- Specifically excludes bonds of companies which the index sponsor determines are involved in and/or derive threshold amounts of income from certain activities or business segments related to adult entertainment, alcohol, gambling money, tobacco, nuclear weapons, controversial weapons, conventional weapons, civilian firearms, nuclear energy, genetically modified organisms or thermal coal, oil or gas.
- Excludes corporate bonds that, as determined by the index sponsor, do not meet certain standards defined by the index sponsor’s ESG Controversy Assessment Framework, as well as companies that do not have at least least one woman on their board.
One place to get tax-free municipal bond exposure is through an ETF wrapper with funds like the Vanguard Tax-Exempt Bond ETF (VTEB). With an expense ratio of 0.06%, the fund provides low-cost exposure to municipal debt.
VTEB tracks Standard & Poor’s National Municipal Bond Index without AMT, which measures the performance of the higher quality segment of the US municipal bond market. This index includes municipal bonds from issuers that are primarily state or local governments or agencies whose interest is exempt from US federal income tax and alternative federal minimum tax (AMT).
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