The global momentum towards net zero continues to drive demand for sustainable investment strategies. BlackRock has launched an ETF that aims to help investors align their portfolios with the objectives of the Paris Agreement – the international agreement to limit global warming to 1.5°C above pre-industrial levels.
The iShares € Corp Bond ESG Paris-Aligned Climate UCITS ETF are designed to mitigate exposure to transition and physical climate risks, capture opportunities arising from the transition to a lower-carbon economy and screen out exposure to businesses involved in activities such as oil and gas, thermal coal, controversial weapons, high carbon electricity generation and social norm violators.
The firm writes that this fund will track a newly designed Bloomberg MSCI index which offers investors a differentiated, fixed income specific methodology. The index tilt issuer weights to maintain diversification while achieving the Paris Aligned benchmark regulatory standards as well as improving the overall ESG profile. The Bloomberg MSCI methodology goes beyond the Paris Aligned Benchmark regulation by applying additional ethical screens and removing the lowest rated ESG issuers. The index also reduces both the absolute and intensity emissions versus parent by reweighting based on issuers.
The firm writes that the index builds upon long-standing collaboration with Bloomberg and MSCI, through which BlackRock delivers critical innovation to achieve PAB decarbonisation solutions tailored to Fixed Income Index investing. Their re-weighting approach delivers a consistent treatment of issuers across multiple bonds outstanding. BlackRock’s Fixed Income expertise also helped to shape other elements of index design, including a thoughtful calibration of risk and turnover limits to deliver a scalable and cost-effective outcome.
Ann Brännback, Senior Portfolio Manager at Varma says: ‘This launch helps us in our continued efforts to achieve a carbon-neutral portfolio by 2035, which is one of Varma’s key sustainability targets. We appreciate the combination of a strong Bloomberg MSCI methodology and BlackRock’s Fixed Income and Sustainable investing expertise. The dual purposed features of both meeting Paris Aligned Benchmark regulatory standards and ESG integration make the ETF very interesting for our credit portfolio.’
Manuela Sperandeo, BlackRock’s EMEA Head of Sustainable Indexing, says: ‘As global investors increasingly seek to align with the transition to a low-carbon economy, there is also a need for independent, reliable and transparent benchmarks to measure the performance of companies that seek to meet or exceed the minimum standards of the Paris Agreement. The transition will require investors to embrace new strategies, and ETFs are playing a central role as foundational building blocks for people seeking out affordability, transparency, and convenience. Our focus remains on providing a broad and deep set of sustainable investment tools that help investors make informed choices. This launch provides investors with a consistent approach across iShares equities and fixed income PAB ETFs, ensuring solutions are available to build multi-asset Paris Aligned Benchmark portfolios.’
29 sustainable UCITS ETFs now have over USD1bn in assets, up from only three funds in 2020. The newly launched product is categorised as Article 9 under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).