Investment giant BlackRock has launched Europe’s first environmental, social and governance (ESG) high yield bond UCITS exchange-traded funds (ETFs).
The two iShares funds, launched in partnership with Dutch insurer a.s.r., comprise companies with a strong commitment to ESG while screening out firms involved in controversial business activities.
Global bond ETF assets topped a massive $1trn as of June 2019, according to Bloomberg data, with BlackRock forecasting the market could double to $2trn by 2024, of which $50bn is predicted to be in EMEA fixed income ESG.
The euro and dollar-denominated ETFs will track the Bloomberg Barclays MSCI Euro Corporate High Yield SRI and Sustainable BB+ Bond Index, and the Bloomberg Barclays MSCI US Corporate High Yield SRI and Sustainable BB+ Bond Index respectively.
According to BlackRock, the high-yield ESG benchmarks deliver an ESG score uplift as well as carbon emissions reduction, compared to standard parent benchmarks.
Both ETFs will have a total expense ratio of 0.50%, the same as corresponding iShares ETFs in euro and dollar high yield with no ESG screens.
“As evidence increasingly shows that sustainability-related factors can help investors build more resilient portfolios, we are moving into an era where sustainable investing will be the standard way to invest,” Meaghan Muldoon, head of sustainable investing, EMEA, at BlackRock said.
Fixed income steps up
“Against a backdrop of a search for yield, and enhanced coverage across the credit and geographic spectrum, more and more investors can now invest in fixed income strategies while meeting their sustainability goals,” Muldoon commented.
Brett Olson, head of iShares fixed income, EMEA, at BlackRock, said while the conversation around sustainability started out in equities, innovation in ESG bond indices is picking up pace, resulting in an increased ability to build ESG-centered multi-asset portfolios.
“In tandem, bond ETFs themselves are becoming ubiquitous as efficient tools for all types of investors. These two factors make this asset class ripe for future growth,” Olson said.
As of 30 September 2019, BlackRock-managed iShares had a global line-up of over 900 ETFs and $2trn in assets under management.