BlackRock has announced the launch of the iShares JP Morgan ESG $ EM Bond UCITS ETF, providing exposure to sovereign and quasi-sovereign bonds from emerging market issuers that adhere to high environmental, social and governance (ESG) standards.
The fund’s underlying index is part of a broader collaboration between BlackRock and JP Morgan to produce a suite of ESG-friendly global bond products.
The ETF has been listed on the London Stock Exchange and tracks an index created as part of a joint venture with JP Morgan to introduce a suite of global bond indices incorporating ESG considerations.
Benoit Sorel, Head of iShares EMEA Product, commented, “The improvement in the quality and coverage of ESG data in emerging markets has enabled investors to identify issuers with better ESG performance. With this fund, we are providing investors the ability to integrate sustainability considerations in emerging market bond portfolios.”
The underlying reference for the fund is the JP Morgan ESG EMBI Global Diversified Index, which tracks fixed and floating-rate debt instruments denominated in US dollars.
It is based on the flagship JP Morgan EMBI Global Diversified Index which includes bonds with at least 2.5 years remaining to maturity and a face value of at least $500 million outstanding. Whole countries can be removed from the index universe if their Gross National Income per capita is above JP Morgan’s Index Income Ceiling (currently $18,769) or if its long-term foreign currency sovereign credit rating is “A-“ or above for three consecutive years.
The methodology applies an ESG scoring and screening process based on data from Sustainalytics and RepRisk to tilt the index towards green bond issues or issuers ranked higher on ESG criteria, and to underweight or remove issuers that rank lower.
As of 26 September 2018, the index provides exposure mainly to sovereign issuers (84.5%) with the remaining allocation in quasi-sovereign bonds. The largest country exposures are Mexico (6.0%), Hungary (5.1%), Indonesia (4.4%), Poland (4.0%), and Turkey (4.0%).
Bonds rated “BBB” make up the largest credit quality bucket in the index with a weight of 44.4%, followed by bonds rated “BB” (21.5%), “B” (19.8%), and “A” (13.3%). The index has an effective duration of 6.9 years and is currently yielding 5.5%.
The fund comes with a total expense ratio (TER) of 0.45% and has two share classes: distributing (EMES LN), with income paid out on a semi-annual basis, and capitalising (EMSA LN).