BlackRock has launched four emerging markets debt funds with an ESG benchmark and investment strategy, as part of plans to “trigger a change in behaviour” from corporate and sovereign issuers.
The investment giant told RI: “The time has come for us, as industry leaders, to make an effort.” Sergio Trigo Paz, Head of Emerging Market Debt, said the ambition was to drive a transformation in ESG investment products similar to that experienced by organic food in the past decades.
“Organic food was once something niche, bespoke and expensive, but today, you can find it in Tesco. We’re proposing the same thing: a scalable product, but at the same price as the rest of our traditional EM products.”
BlackRock has seeded the vehicles and is “advanced discussions” with some investors, mainly in Europe.
All four are benchmarked against a family of ESG indices developed by JP Morgan in April, in collaboration with BlackRock, called the JESG EMD indices. These are the first funds to be licensed to the indices, although Trigo Paz said the reason for developing the benchmarks with an external provider was to encourage other players to use them too.
“Many years ago, there were emerging markets indices from JP Morgan, which were based on market capitalisation, and that meant the countries that borrowed the most were the biggest weights, so investors ended up tilted towards the biggest borrowers and therefore, much of the time, the worst credit.“Then they developed a new index to limit this, and everybody migrated to that. The next step for us is to create vehicles for emerging markets that allow investors to migrate into ESG. Not only BlackRock – we want other industry players to join the pack so that all investment in emerging markets could – it is our dream – migrate towards ESG”.
Giulia Pellegrini, Portfolio Manager and Head of Emerging Market Debt Sustainable Investing, said the funds will use a conventional BlackRock investment process, but with enhance ESG analysis on top.
“For years, we’ve been looking at idiocyncratic risk issues in emerging markets in a more ad-hoc way, and we’ve seen time and time again that ESG can drive alpha. Now, data is much better quality and higher frequency, which allows us to come at this in a more structured way.”
Meanwhile, emerging markets guru Mark Mobius’ Mobius Capital Partners is planning to launch an emerging and frontier markets investment trust with an ESG slant on the London Stock Exchange next month.
Mobius Investment Trust (MMIT) will invest in small- and mid-cap companies in emerging and frontier markets with an absolute return focus.
BlackRock’s four actively managed UCITS funds are:
• BGF ESG Emerging Markets Bond Fund
• BGF ESG Emerging Markets Local Currency Bond Fund
• BGF ESG Emerging Markets Corporate Bond Fund
• BGF ESG Emerging Markets Blended Bond Fund