BlackRock has launched the Emerging Markets Impact Bond Fund in Europe, an actively managed unconstrained strategy seeking to deliver long-term, measurable social and environmental impact whilst generating an attractive total return.
The strategy is BlackRock’s first active fixed income impact fund and one of the first of its kind in the market.
The Fund seeks to achieve capital growth and income over the long term by investing at least 80 per cent of its total assets in a portfolio of “Green, Social and Sustainability” (GSS) bonds issued by sovereign and corporate issuers operating in emerging markets.
The proceeds of GSS bonds must be fully tied to green and social impact projects, for example in renewable energy, micro-finance, ecologically sustainable food production and access to healthcare. Up to a further 20% of the portfolio can be invested in non-GSS bond issuers with strong ESG characteristics that are aligned with the United Nations Sustainable Development Goals. This is expected to be a combination of corporate and sovereign bonds, where the team has identified companies and countries on an improving trajectory across multiple goals, including, crucially, poverty reduction, health, education, clean water and peace.
The result is a portfolio of approximately 50-60 names offering daily liquidity. The Fund may invest in the full spectrum of available fixed income securities, including non-investment grade and adopts flexible currency exposure. The strategy is unconstrained but aims to outperform the JPM ESG Green Bond Emerging Markets Index over the long term.
Rich Kushel, Head of BlackRock’s Portfolio Management Group (PMG), says: “The events of the past year have had a profound social impact on emerging markets, which have been the economies hardest hit by the Covid-19 pandemic due to lower rates of vaccination. This is one of the first products with a clear focus on Green, Social and Sustainable bonds for these economies, where capital is needed to drive sustainable growth. While emerging market bonds are already a strategic asset class for investors, there is a growing consensus that focused green and social funding can play an important role in closing the gap to the targets laid out in the UN Sustainable Development Goals.”
The investment universe of GSS bonds is internally created, screening bonds using BlackRock’s proprietary taxonomy. The investment team will analyse how issuers use the proceeds of capital raised, as well as how the issuers align with the Green Bond Principles (GBP), Social Bond Principles (SBP), and Sustainability Bond Guidelines (SBG) of the International Capital Markets Association to determine suitability within the investment universe.
Across the portfolio, the investment approach identifies the GSS bonds and other fixed income securities that, in the team’s view, have the potential to produce attractive long-term returns, whilst also being consistent with the United Nations Sustainable Development Goals.
The newly launched Fund is categorized as Article 9 under the European Union’s Sustainable Finance Disclosure Regulation (SFDR), in line with BlackRock’s expectation that 70% of its fund launches and repositionings in Europe this year qualify for Article 8 or 9.
