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Friday Funds: IIF flags ‘sharp slowdown’ in global ESG flows

The latest developments in ESG-related funds: BlackRock shareholders fail to approve ESG index switch; ESG funds see fall in capital flows; Swiss air capture firm raises capital from M&G and Baillie Gifford.

Capital flows into global ESG funds fell to just $15 billion in March this year, following Russia’s invasion of Ukraine, according to figures from the Institute of International Funds. Overall flows into ESG funds in the first quarter fell to $75 billion, marking a “sharp slowdown” from previous quarters. The monthly rate was the lowest since March 2020, when covid-19 was declared a pandemic, triggering heavy outflows across the board. According to the data, the main slowdown was in equity funds due to increased volatility in tech shares leading to reduced investor appetite for ESG funds with heavy tech holdings. Higher oil prices were also cited as a factor, with investors channelling funds into non-ESG energy stocks.

BlackRock’s plans to transition a €1.4 billion iShares corporate bond ETF to a Bloomberg SRI index has reportedly been derailed after shareholders failed to turn up at a meeting to approve the changes. The firm had previously mooted plans to switch the iShares € Corp Bond ex-Financials Ucits ETF to the Bloomberg MSCI Euro Corporate ex Financials Sustainable SRI index in May. BlackRock said it would “take action in order to seek to understand the reasons behind the result of the EGM”, according to the Financial Times.

Amundi has transitioned a €1.2 billion core equity index tracking the French CAC to a low-carbon ESG index, creating what has been billed as “the largest ETF available in the market on this exposure”. The fund will now track the CAC 40 ESG index, which applies “a strict negative screening” and an “improved ‘green-to-brown’ ratio” to direct capital towards more low-carbon investments. The French asset manager has also realigned a conventional Stoxx Europe 600 ETF to the STOXX Europe 600 ESG Broad Market index, which comprises the top 80 percent of stocks with the highest ESG scores from the index. Both ETFs have been classified as Article 8 funds under the EU SFDR.

In other French news, BNP Paribas Asset Management has launched an index fund focused on green, social and sustainability bonds. The fund, which is listed on Euronext Paris and Deutsche Börse Xetra, is classified as Article 9 under SFDR. BNP Paribas Easy JPM ESG Green Social and Sustainability IG EUR Bond ETF replicates the JPMorgan ESG Green, Social and Sustainability IG EUR Bond Index, consisting of euro-denominated bonds from both developed and emerging markets, with a focus on green bonds aligned with the objectives of the Paris Agreement. The fund offers exposure to bonds designed to provide direct and measurable exposure to projects in areas such as renewable energy infrastructure, programmes to combat unemployment and projects that meet the UN’s Sustainable Development Goals.

M&G, Swiss Re, Baillie Gifford, Carbon Removal Partners and Global Founders Capital have all made an investment in Climeworks, a direct air capture firm based in Switzerland. Climeworks secured CHf600 million ($641 million; €590 million) from investors in an equity round aimed at accelerating its growth and to help scale the market for carbon removal. Details of individual transactions were not disclosed.

HSBC Asset Management has launched two more Paris-aligned ETFs targeting emerging markets and Asia-Pacific ex-Japan. The MSCI Emerging Markets Climate Paris Aligned UCITS ETF and the HSBC MSCI AC Asia Pacific ex-Japan Climate Paris Aligned UCITS ETF are classified as Article 9 under the Sustainable Finance Disclosure Regulation (SFDR). The ETFs will target investors looking to integrate net-zero considerations into their portfolios and will lean towards companies that are 1.5C aligned. They will also look to overweight companies with a high proportion of “green revenue”, those putting forward credible decarbonisation solutions and those exposed to lower physical climate risk.

Brown Advisory, an investment management firm with $140 billion in assets under management, announced the launch of a US dollar-denominated UCITS Fund for its global sustainable total return bond strategy. The fund will invest in a broad range of liquid fixed-income instruments, including conventional and inflation-linked government bonds, and securitised and corporate bonds, in both developed and emerging markets. It will also use active currency exposure to deliver returns. As such, it provides differentiated exposure for investors beyond ESG-labelled bonds. It also uses the firm’s in-house framework for analysing sovereign bonds against ESG criteria.

The UK’s Border to Coast Pensions Partnership, a £55 billion local authority pension fund, has launched its second private markets programme with £4 billion of commitments from its partner funds, which also includes a £1.35 billion climate opportunities offering. The climate offering will be invested over a three-year period and target investments across private equity, infrastructure and private credit. Sectors of interest are clean energy, technology, transport, agriculture, carbon sequestration, automation, low-carbon cement and steel production and next generation plastics.

Actis, a private equity investor in sustainable infrastructure, has exited its investment in Echoenergia, a Brazilian independent renewable energy platform, through a sale to the listed utilities company Equatorial Energia. Details of the transaction were not disclosed.