Fund Solutions

This Week’s Fund News: PGIM Repositions Four Bond Funds

ESG Investor’s weekly round-up of news about funds designed to meet sustainable investing criteria, including PGIM, Amber Infrastructure Group, European Investment Fund, Alter 5, UK Infrastructure Bank, NextEnergy Capital and BNPP AM.

PGIM, part of Prudential Financial, has expanded its ESG investing offer by repositioning four fixed income strategies. The PGIM US BB-B High Yield Bond, Emerging Market Corporate Bond, European BB-B High Yield Bond and European Corporate Bond funds will now incorporate ESG principles in their stated investment objectives. Each fund has been rebranded to reflect this change. “It is clear ESG considerations have become central in the decision-making processes of most asset allocators,” said Kimberly LaPointe, head of PGIM Investments International. “The repositioning of these four fixed income strategies leverages our approach to ESG investing whilst adding ESG to the investment objectives and therefore catering to the demand from investors.” The PGIM Emerging Market Corporate Bond Fund is now the PGIM Emerging Market Corporate ESG Bond Fund, while the PGIM European Corporate Bond Fund is the PGIM European Corporate ESG Bond Fund. The remaining two portfolios have also adopted wider investment remits, alongside deeper ESG implementation. The PGIM US BB-B High Yield Bond Fund has taken on a global mandate, as well as a broader ability to invest across the sub-investment grade credit spectrum. It is now the PGIM Global High Yield ESG Bond Fund, benchmarked against the ICE BofA Developed Markets High Yield Constrained Index. Similarly, the PGIM European BB-B High Yield Bond Fund can now invest more broadly within the high yield credit space. Now named the PGIM European High Yield ESG Bond Fund, its benchmark is the ICE BofA European Currency Non-Financial High Yield 2% Constrained Index. The funds are all sub-funds of the Irish-domiciled UCITS fund umbrella, PGIM Funds plc, and will be registered for sale in the UK and various European jurisdictions.

UK-headquartered infrastructure investment manager Amber Infrastructure Group announced the launch of the £18 million Green New Deal Fund (GNDF) in partnership with the North of Tyne Combined Authority, which is a new low carbon fund established to help the region meet its net zero strategy, providing finance to both the public sector and to SMEs. The fund will catalyse investment in low carbon technologies and support the development of green jobs and skills across both the private and public sectors. “The North Tyne region is at the forefront of innovation in the UK with investments in the offshore wind industry and battery manufacturing,” said the statement on the launch. The GNDF can provide loans, equity and grants to fund small and medium-sized projects that deliver significant carbon and energy savings in the region’s green and low carbon industries. Projects that the GNDF can fund include community energy schemes, electric vehicles charging solutions, building retrofits, small scale renewables, natural capital and low carbon heating systems. Amber has managed public sector backed low carbon funds previously, having launched three impact investment funds since 2011 in partnership with the Greater London Authority and Scottish Government. To date, these funds have saved around 67,000 tonnes of CO2, which is equivalent to taking 61,000 cars off the road and have all received additional public monies based on performance.

The European Investment Fund (EIF) will work with Alter5, a Spanish financial technology company in the sustainable alternative investment sector, to enable access to capital markets for renewable energy developers. The EIF will grant a guarantee of up to €105 million to Alter5 to cover a portfolio of green loans of €150 million to finance the development of renewable energy projects mainly located in Spain. Alter5 provides investors with a technology platform to manage their investments. The EIF, part of the European Investment Bank Group (EIB), provides finance to Europe’s SMEs. The deal is part of the Pan-European Guarantee Fund (EGF), which was created by the EIB Group to protect companies that are struggling in the crisis caused by Covid-19. With almost €25 billion in guarantees, the EGF allows the EIB and EIF to swiftly offer companies, mostly SMEs and mid-caps, access to loans, guarantees, asset-backed securities, capital and other financial instruments. The platform allows for the creation of financing programmes for developers with solutions to address the financing needs of small developers operating in the energy sector. The financing provided to the beneficiaries will be funded via the issuance of green bonds purchased by institutional investors using a single vehicle and a standard documentation package. Alter5 has engaged Bestinver Securities as the green energy bond structuring and placement agent. This agreement between Alter5 and the EIF is backed by the EGF.

The UK Infrastructure Bank has made its first private sector transaction. The deal could help catalyse a new £500m fund with NextEnergy Capital hoped to double the amount of subsidy-free solar power in the UK. The fund, NextPower UK ESG, is a private 10-year solar infrastructure fund that aims to raise £500m to invest into subsidy-free solar power plants in the UK. It will be the largest subsidy-free solar investment fund in the UK, managed by NextEnergy Capital (NEC) a solar infrastructure provider. Once the fund is operational it will have an expected generation capacity of one gigawatt of power from around thirty solar farms across the UK. It will produce enough clean electricity to power the equivalent of 280,000 households or offset 370,000 carbon-emitting cars on the road each year. The UK Infrastructure Bank is providing financing to the initial seed assets of the fund comprising two major subsidy-free solar farms in the UK and plans to invest up to £250m, half of the fund’s total target fund size, on a match-funding basis with the private sector. It is hoped that this support will lead to significant investment into the UK subsidy-free solar sector. The bank was launched in June this year to support infrastructure investment to help tackle climate change and boost regional and local economic growth across the UK. The investment marks the first private sector transaction for the bank and a significant step in helping the UK government meet its net zero goals. The seed assets which are supported by the bank are built and operational at sites in Llanwern in South Wales and Strensham, Worcestershire which together will have an installed capacity of 115 megawatts.

BNP Paribas Asset Management (BNPP AM) said it is upgrading 18 of its ETFs to ESG indices and Paris-Aligned Benchmark (PAB) standards to enhance its BNP Paribas Easy range. The changes mean that 83% of BNPP AM’s index funds representing more than €16 billion are now classified under SFDR Article 8 or Article 9. “The move towards sustainable indices, including PAB, is a step of our development, which reaffirms our position as a key player in index solutions integrating ESG and decarbonisation,” said Isabelle Bourcier, Head of Quantitative & Index Management at BNPP AM. “Since mid-2017, all of our ETF launches have focused on sustainable indices with the aim of having a responsible range. Our offering within ESG index solutions now covers all equity and bond markets, a range of geographic areas and multiple ESG thematic investments, allowing us to offer new solutions.” In addition to the SRI criteria already applied, ETFs and index funds tracking the MSCI SRI S-Series 5% Capped range adopt the characteristics of PABs, the objective of which is specifically to reduce the carbon intensity of the index by at least 50% compared to the initial investment universe in the first year and to achieve a decarbonisation objective of at least 7% annually in subsequent years, in line with the trajectory of the Paris Agreement. There are seven sub-funds in BNPP AM’s index range impacted by this development, which now benefits from an SFDR Article 9 classification. ETFs and index funds tracking the MSCI excluding controversial weapons range are moving towards MSCI ESG Filtered Min TE indices. Five sub-funds are impacted, which benefit from an SFDR Article 8 classification. ETFs and index funds tracking Smart Beta indices are also adopting ESG criteria, selecting issuers with better ESG scores within their relevant investment universe, and excluding certain controversial sectors. Six sub-funds are impacted, which benefit from an SFDR Article 8 classification. Alongside these index changes, BNP Paribas Easy ECPI Global ESG Blue Economy and BNP Paribas Easy ECPI Circular Economy Leaders funds have seen their SFDR classification evolve from Article 8 to Article 9, to better reflect their objectives within responsible investment.

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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