Invest with a Conscience: ESG in Bond Portfolios

Investors looking to invest with a conscience have an increasing amount of options in the world of ETFs and that includes fixed income funds.

A couple of months ago, BlackRock’s iShares introduced four new bond exchange traded funds that screen for quality, value and environmental, social, governance (ESG) principles.

One of those funds is the iShares ESG USD Corporate Bond ETF (NasdaqGM: SUSC). That ETF “seeks to track the investment results of an index composed of U.S. dollar-denominated, investment-grade corporate bonds issued by companies that have positive environmental, social and governance characteristics while exhibiting risk and return characteristics similar to those of the parent index of such index,” according to iShares.

SUSC, which tracks the Bloomberg Barclays MSCI US Corporate ESG Focus Index, holds 182 corporate bonds. SUSC and counterparts such as the iShares ESG 1-5 Year USD Corporate Bond ETF (NasdaqGM: SUSB) are trying to make ESG inroads for bonds.

“As of 31 March 2017, investors have over $200 billion invested in total assets in equity mutual funds and exchange-traded funds (ETFs) that are designated as socially conscious or sustainable (source: Morningstar),” according to BlackRock. “However, fixed income investors have not had many sustainable investment choices. This is in part due to the fact that most research in this space has centered around stocks. Although bonds do not have voting rights, ESG considerations can be applied to the construction of bond indexes similar to how they are for equity indexes.”