BlackRock announced that Scottish Widows has become the first investor in its newly launched BlackRock Global Corporate ESG Insights Bond Fund.
- Scottish Widows backs Blackrock’s new ESG bond fund with £500m
- New ESG bond fund will focus on ESG exposure in investment-grade bonds, expanding market access.
- Pension funds are likely to move towards more climate-aware, ESG focused funds as the importance of return over the long term becomes ever clearer.
The BlackRock Global Corporate ESG Insights Bond Fund has been set up to provide broad-based exposure to global investment grade bonds, whilst seeking to achieve certain ESG related aims. While it aims to deliver a broadly similar level of risk and return as the Bloomberg Global Aggregate Corporate Index GBP Hedged, its portfolio objectives include a carbon emissions intensity score that is 50% less than the index.
Scottish Widows looking for innovation in ESG
UK life insurance and pensions group Scottish Widows has initially allocated £500 million in some of its multiasset funds, including those used in its flagship workplace defined contribution default solution, into BlackRock’s new Fund.
Maria Nazarova-Doyle, Head of Pension Investments and Responsible Investments at Scottish Widows, said: “Working on the creation of these specially tailored funds to drive innovation in ESG investing, rather than just picking an existing solution, helps champion the development of more ambitious responsible investment strategies and products.”
Part of the thinking behind the investment was Scottish Widows interest in seeing more capital flow into climate-aware investment strategies. This is particularly important for pension funds, given that they have to invest over the longer term to ensure they have sufficient funds to pay out pensions in 10, 20 and 30 years.
Using an exclusionary approach to target ESG bonds
The Fund’s strategy uses a set of exclusionary screens to remove certain issuers from the investment universe. That means excluding companies involved in activities relating to thermal coal and tar sands; tobacco; violators of the UN Global Compact Principles; and controversial weapons, as well as companies connected with nuclear weapons or involved in the production of civilian firearms.
The corporate issuers left in the investment universe are then assessed using the BlackRock Sustainable Investing Intelligence (BSI Intel) framework, using a variety of ESG datasets generated by BlackRock and external research providers to evaluate and score corporate issuers.
Blackrock’s BSI Intel Insight driving investment decisions
BlackRock combines these various ESG datasets for corporate issuers to create one overall ESG score – the ‘BSI Intel Insight’ – for each corporate issuer.
The resulting portfolio is comprised of higher scoring ESG issuers, relative to other corporate issuers in the same or similar industries, whilst seeking to maintain a risk and return profile broadly similar to that of the index.
According to a statement, this strategy reflects growing demand from UK retirement savings providers, wealth managers and private banks for innovative solutions that incorporate climate change-related risks and opportunities as well as the nuances of ESG integration that are unique to bonds.
This is the second fund which BlackRock has built in consultation with Scottish Widows, which helps around 6 million people across the UK plan for their financial future. The first was the BlackRock Authorised Contractual Scheme (ACS) Climate Transition World Equity Fund that launched in August 2020