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BofA Merrill Lynch Global Research launches Green Bond Index

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BofA Merrill Lynch Global Research has launched the BofA Merrill Lynch Green Bond Index (GREN), which tracks the performance of debt issued by quasi-governments and corporations where the proceeds are to be used solely for projects and activities that promote climate or other environmental sustainability purposes.

Development of the index has been driven by the growth of interest in this market segment following a recent surge in issuance and expectations for significant issuance to come.
 
“The first green bond was issued in 2007, but through 2012, additional issuance was slow,” says Phil Galdi, head of BofA Merrill Lynch Global Bond Index Research. “However, in 2013 more green bonds were issued than in the previous six years combined, and that volume has already more than doubled in 2014. Currently, there are USD31 billion in qualifying green bonds included in the index, but that may just be the tip of the iceberg.”
 
Beijia Ma, thematic investing strategist, says: “It is estimated that the world needs up to USD53 trillion in energy investments by 2035, including USUSD39 trillion to shift away from fossil fuels and USD14 trillion for energy efficiency. We believe green bonds are a game changer in unlocking private capital to meet that funding requirement.”
 
The index has daily historical data back to its chosen inception date of 31 December 2010. Initially, the index would have been dominated by AAA-rated supranational issuers. The first qualifying green corporate constituent did not arrive until 2013. In 2014, corporate issuers have contributed equally to the growth of the index and now make up a third of the index capitalisation, improving the diversity of the index and also adding incremental spread, as the average rating has declined to AA2 with the addition of the corporates.

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