A sustainable government bond ETF has been launched by iShares, offering investors access to climate risk-adjusted eurozone government bonds.
The iShares € Govt Bond Climate UCITS ETF will track the FTSE Advanced Climate Risk-Adjusted European Monetary Union (EMU) Government Bond index and marks the first sustainable government bond ETF and first sustainable thematic fixed income ETF for the world’s largest ETF provider.
For a total expense ratio of 0.09%, the fund will provide access to EMU government bonds while seeking to provide a higher exposure to those countries less exposed to climate change risks and a lower exposure to those more exposed.
The newly designed index builds on its parent index, which was launched in January 2020, by applying scores for physical risk, transition risk and resiliency in equal measure, and incorporates a tilting methodology that adjusts index weights according to each nation’s climate risk exposure.
This risk exposure includes an assessment of the country’s “resilience and preparedness” in relation to climate change, the expected economic impact of transitioning to the Paris Accord’s 2°C target, and an assessment of physical risk, such as sea level rises.
Arne Staal, global head of research and product management at FTSE Russell, said: “The decision by a leading investor and ETF provider such as Blackrock to license FTSE Russell’s Advanced Climate EGBI for an ETF listing marks an important juncture in climate themed investing in European fixed income markets.
“Both institutional and private asset owners are increasingly including climate objectives in their decision making and are adjusting fixed income portfolios based on climate concerns. We expect growing interest from investors in this area.”
Brett Olson, head of iShares fixed income, EMEA at BlackRock, added: “Sovereign issuers are facing increasing pressure to meet sustainability criteria, as more investors consider the ESG profile of their fixed income portfolios.
“Until today, investors have had very limited options for cost effective exposure to government bonds that incorporate climate risk. This launch is yet another example of our commitment to providing investors with more choice to build sustainable portfolios.”