New Listing

BlackRock launches Europe’s first government bond climate ETF

Exposure to eurozone sovereign debt

Tom Eckett

a man smiling for the camera

BlackRock has become the latest ETF issuer to enter the climate change space with the launch of Europe’s first government bond climate ETF.

The iShares € Govt Bond Climate UCITS ETF (SECD) is listed on Xetra with a total expense ratio (TER) of 0.09%.

SECD tracks the FTSE Climate Risk-Adjusted European Monetary Union (EMU) Government Bond index which was launched in January this year following the introduction of two climate benchmarks by the European Union.

SECD offers investors exposure to investment grade eurozone government bonds with a focus on climate considerations.

The index incorporates a tilting methodology that adjusts index weights according to each country’s relative exposure to climate risks across three categories; physical risk, transition risk and resiliency.

This includes an assessment of the expected economic impact of transitioning to greenhouse gas emissions levels aligned with the Paris Accord target of less than 2°C by 2050, known as transition risk.

It also incorporates an assessment of the physical risk of climate change such as sea level rises and the resiliency of countries to tackle these issues.

Meanwhile, resilience represents a country’s preparedness to cope with its level of climate related risk exposure.

The index is on average 26% better aligned to a 2-degree pathway and provides an annual greenhouse gas (GHG) reduction of 7% vs the parent index.

Brett Olson (pictured), head of iShares fixed income, EMEA, at BlackRock, who was named in ETF Stream's Industry 30 this year, commented: “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.”

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Arne Staal, global head of research and product management at FTSE Russell, added: “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.”

This is the latest launch in the climate change ETF space which is becoming an increasingly crowded market.

French asset manager Lyxor was the first to bring climate ETFs to the European market with the launch of a four-strong range in March.

In recent months, Amundi, Deka and Franklin Templeton have all subsequently unveiled climate ETF ranges.

The largest climate ETF on the market is the Amundi Index MSCI Global Climate Change UCITS ETF EUR (LWCR) which has $258m assets under management (AUM).

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