Even if more governments are cracking down on environmental, social and governance (ESG) investing, there’s no doubt that the space will continue to grow in the global landscape. With that, global investment firm and ETF provider BlackRock is sensing an opportunity with climate change around the world.
Per a Financial Times report, “BlackRock has launched a sovereign bond ETF designed to weight countries on their level of risk from climate change, thrusting the debate over sustainable investment into the political sphere. Government debt from Germany, Spain, the Netherlands, Belgium and Ireland will be underweighted in the new ETF because of their higher greenhouse gas emissions or greater exposure to climate change risks.”
“The iShares € Govt Bond Climate Ucits ETF (SECD), which began trading on Frankfurt’s Xetra bourse on Monday, is designed to help fill the void,” the article noted.
“Climate change could significantly impact government finances. We have argued that there is a link between climate change and creditworthiness,” said Scott Harman, head of fixed income product management at FTSE Russell.
Equities have been the beneficiaries of a rise in ESG, but BlackRock is hoping to see more focus on ESG within bonds–specifically, government bonds.
“To date, investors have considered climate risk from an equity or corporate debt perspective, despite the average allocation to government bonds in client portfolios being around 17 per cent,” said Brett Olson, head of iShares fixed income, Emea, at BlackRock. “As a result, investors have overlooked the impact of climate change on their portfolios, without a robust solution to addressing climate risk within their government bond allocation.”
^MSACWIESGF data by YCharts
More ESG Funds to Consider
Investors who want ESG exposure via an ETF wrapper can take a look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.
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