Andrew Howard

BlackRock Investment Management (Australia) Limited (BlackRock) has announced the launch of its new unlisted iShares ESG Global Bond Index Fund, benchmarked to a customised Bloomberg Barclays MSCI Global Aggregate SRI Select ex-Fossil Fuels Index (AUD hedged). The fund is designed for ESG-aware investors seeking a core fixed income exposure to Global fixed income securities and follows the February 2019 launch of BlackRock’s unlisted iShares ESG Australian Bond Index Fund.

Applying the MSCI’s SRI methodology, the fund excludes issuers in eight core filters: tobacco, alcohol, gambling, military weapons, civilian firearms, nuclear power, adult entertainment and genetically modified organisms (GMOs). The fund also has an additional full fossil fuel screen to exclude companies with an industry tie to fossil fuels, in particular reserve ownership, related revenues and power generation. In an effort to extend ESG considerations beyond typical corporate risk the fund excludes sovereign and government-related issuers with an MSCI ESG Government rating below ‘BB’.

Craig Vardy, Head of Fixed Income at BlackRock Australia said: “BlackRock is increasing its focus on sustainability across the board – from investment processes to investment solutions. Sustainable investing is no longer a niche area and has been brought to the mainstream, because of increased access to more granular data, more sophisticated analysis, shifting societal understanding of sustainability and a growing awareness that ESG factors can be tied to a company’s long-term growth potential.

“The iShares ESG Global Bond Index Fund adopts BlackRock’s proven index-driven investment process, combined with research-driven credit analysis. It provides a sustainable investment solution for those seeking exposure to global fixed income securities, particularly in this current low-rate environment, at the same low fee as non-ESG fixed income passive solutions.”

Similar to the iShares ESG Australian Bond Index Fund, the iShares ESG Global Bond Index Fund has been developed in partnership with and seeded by A$23 billion superannuation fund VicSuper, highlighting Australian investors’ growing demand for sustainable investing solutions.

VicSuper CIO, Andrew Howard, said: “Our members are increasingly concerned about ESG-related issues, and they are taking action by choosing to invest their retirement savings in a way that aligns to their values.”

Commenting on the partnership, Andrew Howard said: “We’re proud to have been able to partner with BlackRock to develop and become the seed investor for its new ESG-focused Global Bond Fund and, in doing so, to extend to fixed interest the same exclusionary screens we apply to equities (under the Socially Conscious investment option).”

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Applying the MSCI’s SRI index methodology, the fund excludes tobacco, alcohol, gambling, military weapons, civilian firearms, nuclear power, adult entertainment, genetically modified organisms (GMOs) and fossil fuel reserves. Issuer weights are then tilted based on the current MSCI ESG Rating, as well as its MSCI ESG Rating momentum. This is the first indexed ESG Australian bond fund in the market.  It is also the first indexed ESG fund with a dedicated Australian ESG benchmark.

The fund is managed by Craig Vardy, Head of Fixed Income at BlackRock Australia, and the wider Australian fixed income team. Craig Vardy said: “We have reached an inflection point in sustainable investing. ESG has come to the forefront and can be implemented broadly across most asset classes without foregoing risk-adjusted returns.

“The ESG-focused Australian Bond Index fund is a passive investment strategy designed for ESG-aware investors seeking a core fixed income exposure to Australian-dollar securities. From a fee perspective, investors can now invest sustainably at the same low fee as non-ESG fixed income passive solutions. We believe investors can future-proof portfolios by considering sustainable investment alternatives.

The fund was developed in partnership with and has been seeded by VicSuper, a A$21 billion superannuation fund, reiterating Australian investors’ growing demand for improved ESG outcomes.

An analysis of the past five years return history shows that investors would have experienced a very similar return and risk outcome from investing in our custom ESG Index compared to the standard parent index.

Dominik Rohe, Managing Director and Head of BlackRock, Australasia, said: “Our goal is to be at the forefront of sustainable investing solutions for Australasian investors. As a fiduciary to our clients, we dedicate ourselves to protecting and growing the value of our clients’ assets, and we believe business-relevant sustainability factors can contribute to a company’s long-term financial performance.

“Sustainable investing is going mainstream with the support of improved data and technology, including new portfolio analytics, transparent ESG data, and model portfolios. The launch of our ESGABI fund reflects the growing demand from our clients for sustainable investing solutions.”

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