In this note, we provide a detailed examination of the Bloomberg Global Aggregate Index and the related Green Bond Index. We explain how they differ in currency composition, duration, and sector weighting, and what this means for investors. This analysis reveals a “tracking error dilemma” for investors considering an allocation beyond the Global Aggregate’s current ~2.7% green bond weight.
We then outline several practical approaches for addressing this challenge. These include green tilting, core-satellite portfolios, and adjustments that rebalance government bond exposure. Each option offers investors a way to increase their green bond allocation according to their risk tolerance and portfolio objectives.
