Fund Solutions

This Week’s Fund News: New Bond Funds Seek Green and Social Impact

ESG Investor’s weekly round-up of news about funds designed to meet sustainable investing criteria, including BlackRock, Tikehau, DWS, First Super, Cameron Hume, Invesco, ETC and MAPFRE. 

The world’s largest asset manager BlackRock has expanded its emerging markets active fixed income range with the Emerging Markets Impact Bond fund. The fixed income impact fund aims to deliver long-term social and environmental performance by investing at least 80% of its total assets on green, social and sustainability (GSS) bonds issued by sovereign and corporate issuers in emerging markets. Bonds must be fully tied to green and social impact projects, such as ecologically sustainable food production or renewable energy. The remaining 20% can be invested in non-GSS bond issuers which are contributing to the United Nations Sustainable Development Goals. Offering a total portfolio of 50-60 holdings, the strategy aims to outperform the JPM ESG Green Bond Emerging Markets index. The fund is categorised as Article 9 under the EU’s Sustainable Finance Disclosure Regulation (SFDR). “While emerging market bonds are already a strategic asset class for investors, there is a growing consensus that focused green and social funding can play an important role in closing the gap to the targets laid out in the UN Sustainable Development Goals,” said Rich Kushel, Head of BlackRock’s Portfolio Management Group. Tikehau Capital has launched the Tikehau Impact Credit fund, which will focus on lowering companies’ carbon footprint to better facilitate the transition to a net-zero carbon economy. Committing €30 million of initial capital, Tikehau is using the fund to expand its impact investing strategy into fixed income. Actively engaging with companies across a diverse range of sectors, the fund will focus on three key issuer groups: green or sustainability-linked bonds and climate ‘pure-players’ already involved in the energy and ecological transition; issuers who have signed an international pledge to mitigate climate risk; and companies with the potential to contribute positively to the transition to net-zero. “In 2020, commitments to reach net-zero emissions from businesses have roughly doubled. The next step is for impact investing to reach the shores of the fixed income market. We are committed to deploying an engagement strategy contributing to the global initiative for companies to achieve net zero emissions by 2050 or sooner and will seek to give our investors the opportunity to reach both ambitious financial and extra-financial goals through their fixed income allocation,” said Raphaël Thuin, Head of Capital Markets Strategies at Tikehau Capital.

German asset manager DWS has launched two Xtrackers ETFs that will provide investors with access to the green corporate bond market. Listed on Deutsche Borse, the Xtrackers EUR Corporate Green Bond UCITS ETF and Xtrackers USD Corporate Green Bond UCITS ETF will track the newly developed Bloomberg Barclays indices that use MSCI ESG Research data to assess the credentials of eligible debt in relation to the Green Bonds Principles criteria. Qualifying as an Article 9 fund under SFDR, included bonds must clearly have the financing of climate and environmental projects as their main objective, as well as satisfy other ESG criteria according to MSCI ESG ratings and controversies filters. Luxembourg-headquartered private bank Quintet is a seed investor in the ETFs and will be including the funds in discretionary portfolios. “Green bond issuance is booming, but most green bond indices are biased towards sovereign and supra-national debt. The new Xtrackers USD and EUR green bond ETFs have been constructed to provide investors with exposure to the corporate and corporate-related agency bond segment of this rapidly developing market. This provides corporate bond investors with a compelling alternative to traditional and ESG offerings,” said Michael Mohr, DWS Head of Passive Product Development.

Australian pension fund First Super has awarded a US$93 million ESG-focused fixed income mandate to fixed income investment firm Cameron Hume. The Cameron Hume Global Fixed Income fund comprises of asset-backed securities, sovereigns and corporates. As First Super, which is a multi-industry fund with 45,000 members, develops its responsible investing policy, there is scope for the mandate to increase to around US$370 million. “ESG has clearly been at the forefront of institutional investors’ minds, and managers in equities, infrastructure and property have been talking about it for some time. Although managers of fixed-income and floating rate debt asset classes have been a bit slower to come to the party I believe you will see more institutional investors looking for managers in this asset class and other asset classes with a good ESG methodology,” said First Super CEO Bill Watson. With investment from the Australian pension fund, Cameron Hume has US$1.02 billion in AUM. “Using our own proprietary analytics tool, CaTo, and the expertise of our experienced investment team, the Cameron Hume Global Fixed Income ESG Fund makes integrating ESG factors into a fixed-income strategy achievable without sacrificing returns,” said Chris Torkington, Managing Director of Cameron Hume.

Invesco has expanded its responsible ETF range with the Invesco MSCI Emerging Markets ESG Universal Screened UCITS ETF. The fund has been constructed based on the MSCI Emerging Markets index. Invesco has excluded any company involved in controversial sectors such as tobacco, oil sands and civilian firearms. Furthermore, if a company has a very low MSCI ESG score or has faced controversies within the past three years then they will also be removed from the index. The fund is the latest addition to the firm’s passive range, giving investors a choice of eight regional and global exposures. “When we speak to investors about what is most important to them when selecting responsibly invested funds, performance and engagement are normally at the top of their list. We can satisfy these demands with passive ETFs by choosing the right benchmark and having the people and systems in place to track it closely, and by following a robust engagement process. We vote the shares held by our passive ETFs in line with the largest active holder of those shares within the Invesco group. That combined vote can give us a much bigger voice on key ESG decisions,” said Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco.

Spanish insurance group MAPFRE has launched its first renewables fund, the MAPFRE Energías Renovables I FCR. This is further leveraging the insurer’s strategic alliance – which aims to create more sustainable investment products – with energy company Iberdrola. The alliance was first announced in April and commits both firms to the energy transition and the green economy. Working with Kobus Partners to manage the fund, MAPFRE will channel its own investments into renewables while also allowing other institutional investors to adopt the strategy. MAPFRE has taken the same approach in its venture capital, traditional asset and infrastructure investments. Blue Tree Asset Management and King & Wood Mallesons have acted as technical and legal consultants respectively.

Crypto provider ETC Group has announced that its Ethereum Classic (ETC) Group Physical Bitcoin (BTCE) exchange-traded product is going carbon neutral. ETC Group aims to offset BTCE’s carbon footprint through carbon credits which will compensate for the current carbon emissions associated with BTCE bitcoin mining and transaction activities. These credits will support projects managed by climate and conservation groups around the world. “Companies benefiting from cryptocurrencies like bitcoin are right to take meaningful steps to address climate concerns. We are pleased to see that bitcoin miners are increasingly sourcing renewable electricity, but we at ETC Group feel it’s important to do more and act now. That’s why we have launched our initiative to calculate our bitcoin product’s carbon footprint, and offset it with high quality projects curated and monitored by some of the world’s most respected climate action companies,” said ETC Group’s Co-Founder and CEO Bradley Duke.

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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