Friday Funds: Scottish Widows transitions default bond fund to ESG equivalent

The latest developments in ESG-related funds: JP Morgan AM to merge emerging markets funds, Eurazeo sells Reden Solar stake for €632m.

Scottish Widows has announced plans to switch its £3.6 billion default corporate bond fund to an ESG-screened version of the iBoxx index it tracks. The fund will now track the iBoxx MSCI ESG GBP non-gilts index, which excludes all fossil fuel extraction and generation along with firearms, tobacco and issuers in violation of the UN global compact. Issuers under a defined MSCI rating threshold are also excluded. The switch will remove around 25 percent of securities included in the original benchmark. 

BlackRock has proposed switching the underlying indexes for two €1.4 billion corporate bond ETFs to ones that incorporate SRI considerations. The two iShares funds, which track euro denominated ex-financial corporate bonds, will be changed to variants that exclude the firms with the lowest ESG ratings from MSCI, as well as those with a ‘red’ controversy score and those operating in controversial sectors including fossil fuels and tobacco. The funds will track around a third fewer securities as a result of the changes. Shareholders will be asked to vote on the proposal at an extraordinary general meeting on March 25th. 

In other ETF news, JP Morgan has announced plans to merge an emerging markets ‘research-enhanced’ fund with an ESG ETF following a similar strategy. The manager will merge the $47 million index fund with its $686 million ESG-focused cousin, which is classified as Article 8 under the EU’s sustainable finance disclosure regulation, in May.  

Eurazeo is to sell its 47 percent stake in European solar firm Reden Solar to Macquarie, British Columbia Investment management and MEAG for €632 million. Eurazeo acquired the stake in 2017, and said that the sale represented an internal rate of return of 42 percent. 

Architas has launched a new sustainable global equity fund. The EPIC global equity opportunities fund will be classified as an Article 9 fund under SFDR, and will invest 100% of assets in “securities Architas believe are sustainable investments based on their extensive research”, focusing on three themes: digital transformation, health and wealth and sustainable planet. 

Franklin Templeton subsidiary Western Asset has launched a sustainable corporate bond fund which seeks to lower portfolio carbon intensity by identifying issuers with whom Western Asset regularly engages, and have credible and quantifiable targets, as well as those with plans to reduce carbon intensity and increase renewables use. The fund excludes issuers involved in tobacco, civilian firearms, controversial weapons, nuclear weapons, thermal coal and those in breach of the UN global compact.