Responsible Funds, July 15: CalSTRS, BlackRock, Northern Trust, Jupiter, PiP, AXA

The round-up of the latest responsible funds news

CalSTRS has committed $2.5bn to a low-carbon index from MSCI in a bid to align itself with “market realities” around climate change. The Californian pension giant will assign the portfolio to the MSCI ACWI Low-Carbon Target index, launched in 2014. The index seeks to reduce investment in companies most exposed to future carbon taxes or policies. It does so by underweighting firms in the universe that have high fossil fuel reserves and carbon emissions, and reallocating investment to those with lower reserves and emissions. “This action is the result of highly detailed discussions over a good deal of time that we feel could not just protect us from losses in a transition to low-carbon but position us to generate better returns than more carbon-intensive portfolios in the long-run,” said CalSTRS Investment Committee Vice-Chair Tom Unterman.

Fund management giant BlackRock has unveiled two sustainable equity exchange-traded funds (ETFs), further broadening its ESG offerings. The two new funds track indices consisting of companies with MSCI environmental, social and governance (ESG) ratings level BB and above. This metric rates companies on 37 key ESG factors including carbon emissions and business ethics. The indices aim to minimise exposure to activities involving alcohol, tobacco, gambling, civilian firearms, military weapons, nuclear power, adult entertainment and genetically modified organisms (GMOs). The two funds are called the iShares Sustainable MSCI Emerging Markets SRI UCITS ETF (SUSM) and the iShares Sustainable MSCI USA SRI UCITS ETF (SUAS).

Northern Trust has licensed two exchange-traded funds to recently-launched ESG indices from German provider Stoxx. The ETFs, which are listed on Nasdaq, will track the Stoxx Global ESG impact and Stoxx USA ESG Impact indices, which are both tilted to favour companies that perform highly on selected ESG criteria. The indices use the Stoxx Global 1800 Index as their universe, excluding coal miners, violators of the UN Global Compact principles and companies involved in “controversial” weapons. The remaining constituents are subject to an ESG assessment based on their emissions reduction targets, the percentage of women on their boards, the proportion of independent directors, their policies on child labour and their ‘golden parachute’ rules.

AXA Investment Managers has launched the AXA World Funds Global SmartBeta Equity ESG fund, which aims to provide a “transparent, low cost way to invest responsibly whilst generating long-term returns and reducing risk”. It aims to deliver 1-2 per cent annualised excess return with approximately 80% of market volatility over a full cycle as well as achieving a higher environmental, social and governance (ESG) score and a lower carbon footprint. The fund has institutional share classes and is registered for distribution in Austria, Denmark, Finland, France, Germany, Italy, Luxembourg, Netherlands, Norway, Sweden and the UK. A retail share class is expected to be launched later in the year.

The Pensions Infrastructure Platform (PiP), the UK infrastructure investment manager established by pension schemes, has provided £27.5m of inflation-linked debt financing to refinance a portfolio of 2366 rooftop solar assets being arranged by Novatio Capital Limited. The assets are distributed across England and Wales, with a total installed capacity of 6.71 MWp. The financing is repayable over 20 years benefitting from the UK’s feed in tariff regime. It is the first investment for the PiP Multi-Strategy Infrastructure Fund.The new Jupiter Global Ecology Diversified SICAV fund aims to generate long-term capital appreciation and income by investing in a mixture of stocks and bonds belonging to companies which stand to benefit from the transition to a sustainable economy. Managed by Charlie Thomas, Abbie Llewellyn-Waters and Rhys Petheram, the fund brings together the expertise of Jupiter’s Environment & Sustainability and Fixed Income & Multi-Asset teams. Jupiter says the team invests in companies that provide solutions to challenges identified by the UN Sustainable Development Goals for 2030, principally “to protect the planet from degradation, including through sustainable consumption and production, sustainably managing its natural resources and taking urgent action on climate change”. Link

Green/cat bonds:

The International Finance Corporation (IFC) is readying itself to launch a $2 billion green bond fund to help bolster the asset class in emerging markets. The Green Bond Cornerstone Fund is due to be launched in coming weeks and will provide cornerstone investments into green bonds from developing markets. No further details have been disclosed. The IFC, part of the World Bank, is already a frequent issuer of green bonds itself, and has been focusing on creating instruments to help spur on the market in some of those countries most effected by climate change.

Florida-based insurance firm United Property & Casualty Insurance Company, Family Security Insurance Company, Inc. and Interboro Insurance Company (UPC) has issued its first catastrophe bond. The $100 million insurance-linked deal has three tranches, each with a one-year risk period. The notes cover named storms and earthquakes affecting certain coastal states in the US. The transaction was structured and placed by Swiss Re Capital Markets and issued through Laetere Re Ltd.

The New Development Bank – otherwise known as BRICS Bank – is planning to issue CNY3bn (€440m) of green bonds in coming weeks, according to reports. The bank, set up by Brazil, Russia, India, China and South Africa in 2014, is expected to launch the five-year notes on Monday, in accordance with China’s central bank guidelines on green bonds. Proceeds from the transaction will be used to finance green projects in the five countries, although no further information is currently available. Bank of China will be the lead manager, with HSBC, Standard Chartered, the China Development Bank, China Construction Bank and the Industrial and Commerical Bank of China also acting as arrangers on the deal.

Barclays, BlackRock, CALSTRS, and TIAA Asset Management have got behind the EBRD’s biggest green bond to date. The development bank issued $650 million of three-year notes with a coupon of 0.875%. Calvert, Fideuram Asset Management, Mirova, Sella Capital Management and TIAA Asset Management were also among the 40 accounts that participated in the transaction – which EBRD said attracted a “very strong proportion” of sustainability-focused investors. This is EBRD’s second benchmark green bond, and proceeds will be used to support its Green Project Portfolio, which includes 338 projects covering renewables, energy efficiency, water and waste management, environmental services and green transport.