Sustainability and eco-responsibility: values that need taking fully into account!
This includes creating strategies with very specific sustainable objectives.
And it is in this sense that BlackRock (which is regularly at the top of global league table for assets under management) helps its clients. As an asset manager, we want to encourage the move towards the economic transformation offered by green finance.
Profitability, resilience and security: a winning trio
In sustainable investing, sophisticated solutions are available to enable environmentally conscious investors to invest in a sustainable fashion. BlackRock is committed to making the bond market easily accessible for new investors who want to take part in the growing green finance revolution.
The aim is to gradually familiarise market participants with ESG characteristics. This will provide resilience and transparency, diversifying portfolios that are both sustainable and which offer attractive potential returns.
Just as the equity market has been well tuned to environmentally responsible and planet-friendly perspectives for many years, sustainable bond ETFs are rapidly gaining ground. This progress is boosted by their multi-faceted nature.
Indeed, these so-called "green" bonds are proving to be both inexpensive and transparent in terms of their goals. Their eligibility to be called ESG products is based on ratings (even in activities that could be seen to be not fully green) and data about their carbon footprints.
Furthermore, the indicators of these sustainable bond ETFs show greater resilience than equity securities in times of crisis, or even when the market is stagnant. It is during times of market turmoil that it is customary to seek to reduce risk. It is not surprising that emerging market bond assets, as well as investment grade US securities, outperformed in the early stages of the pandemic during the first quarter of 2020.
George Harrington, Managing Director & Global Head of Derivatives & Bonds at MSCI (Morgan Stanley Capital International), has said that "MSCI and Bloomberg's Climate Fixed Income indices allow investors to use MSCI's leading climate data, while aligning themselves with the transition to a low-carbon economy. (...) With these indices, they can leverage MSCI's four decades of experience, data, research and insight to bring greater clarity to the traditionally opaque fixed-income asset class."
Building on the sustainable transition with ETFs
Although increasing numbers of individuals, institutional and private investors are aware of the urgent need to respond to climate change with new investment, they often find it difficult to build a sustainable portfolio that suits all their needs.
Moreover, keeping abreast of the various developments in the field – operating models, the rise or fall of interest rates, changing margin forecasts, and the varying potential of securities over a longer or shorter time-period ‑ can quickly become an insurmountable challenge. On top of this, the global energy transition to a low-carbon economy should be taken into account.
Indeed, investing in an eco-responsible fashion must certainly have a positive and lasting impact. Central to this would be a massive reallocation of capital, which itself would help to achieve the greater good of reshaping the world’s economies.
However, given the uncertainties of this major change (which has only just begun at this important moment in the Earth’s history), considerable efforts must be maintained. Analysts have even predicted that within a quarter of a century, a minimum of $50 trillion (or even double that sum)1 will be required to build an economic and financial system which produces net-zero[SE2] carbon emissions. This would make today’s sustainability pioneers and visionaries the winners of tomorrow.
Spectacular, sustained growth
As with shares, awareness is growing of environmentally responsible bonds which offer a stable return. There has been an overall 35-fold increase in total investment, with a growth rate equivalent to ten times that of traditional ETFs2 between the beginning of 2015 and the end of 2021. These investments have broken through, suggesting we could expect an upward trend for the next decade.
Opting for bond ETFs offers, above all, room for investors to rearrange their positions. For example, they can incorporate sustainability into their portfolios, or create other mainly sustainable positions, or simply replace high-quality but conventional bond funds with a sustainability alternative. It is worth noting that the sustainable option has a much lower carbon intensity, and therefore a higher ESG score.
A verified and proven practical approach
We took the opportunity in 2021 to conduct a market study of 175 European investors with more than 250 portfolios, in order to better understand actors’ motivations and goals in this space. It was found that the focus was on three major challenges: portfolio construction, product selection, and data/analysis.
The study revealed that a third of the main stakeholders wanted to be supported by a partner able to meet their expectations. In particular, this was about turning their sustainable objectives and commitments into reality, through a portfolio that represented tangible values.
To give substance to such desires BlackRock positions itself as as a partner of choice for setting plans that move through three stages ‑ evaluation, evolution and construction:
- BlackRock supports its clients by first determining the holistic sustainability profile of a portfolio. This follows comprehensive analyses which enable the identification of respective challenges for investors. Then sustainability measurements of a portfolio are made with further analysis that enables the optimisation of risk management. This is done to propose a new sustainability package that brings together investors' objectives and commitments, from a net-zero carbon perspective.
- The second challenge for investors is to select the most appropriate sustainable funds from the many that have been launched recently. Here again, BlackRock, with the largest offering of sustainability ETFs on a majority of stock exchanges in Europe, comes into its own by providing advice and guidance to undecided or confused investors. The ETFs incorporating sustainable criteria ‑ offered in particular by the iShares range powered by BlackRock ‑ embody ideas of clarity, consistency and transparency sought in sustainable indexing, coupled with the added value that the most up-to-date ESG data can provide.
- Finally, investors need to have access to quality, visible ESG data. In the space of just a decade, the share of companies listed by Standard & Poor's disclosing ESG data has gone from 20% to more than 90%. It is BlackRock's role to help investors decipher the ESG data and observe its consistency.
As an indication, ETFs that track climate-aligned benchmarks are one of the many options now available to investors. As Melissa McDonald, International Head of ESG and Climate Indices, MSCI, puts it: "Paris Aligned Benchmarks are designed to support investors who are looking to reduce their exposure to transitional and physical climate risks, and those who also want to seize the opportunities arising from the transition to a low-carbon economy while aligning with a 1.5°C scenario."
Risk of capital loss. The value of investments and the income they generate can go down as well as up and are not guaranteed. You may not get back the amount originally invested. This document should not be considered as a forecast, research or investment advice and does not constitute a recommendation, offer or solicitation to buy or sell any financial instrument or product or to adopt any investment strategy.
Index returns do not take account of management fees, transaction costs or expenses. Indices are not managed, and it is not possible to invest directly in an index.
1 Source: Intergovernmental Panel on Climate Change (IPCC), "Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development", in An IPCC Special Report on the impacts of global warming, 2018.
2 Source: BlackRock and Morningstar as at 31/12/2021.
3 Source: Results are based on 260 portfolios that BPAS received from investors in the Nordic countries, UK, France, Italy, Spain, Germany, Austria, Eastern Europe, Switzerland and the Netherlands, as well as 108 client surveys BPAS received from investors in the UK, France, Italy, Germany, Austria, Eastern Europe, Switzerland and the Netherlands in 2021. Please note that these results are based on the sample we have collected and therefore should not be taken as fully representative of the EMEA wealth management industry. Sample bias will be related to specific client choices as well as the sample size of the portfolios and surveys collected in each region. Funds are classified as sustainable, based on references to sustainability in their name. Source: BlackRock, September 2021.