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Future-proofing your portfolio

Sustainable investing

Sustainable investing has evolved from a targeted strategy to a fundamental consideration in a portfolio construction and investment process. Investing sustainably is now becoming the market standard, in particular, as more investors increasingly realise that climate risk specifically poses investment risks in portfolios, the tectonic shift to sustainable investments is set to accelerate faster still. We are only at the start of a major reallocation of capital. Transforming portfolios goes beyond substituting select allocations with sustainable ones, and requires investors to embed sustainability considerations into the heart of their portfolio asset allocation process.

Capital at risk: The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

In our view, adapting investment processes that incorporate ESG analysis when setting overall ESG portfolio objectives will be essential to success in the future.

Sustainability doesn’t mean sacrificing returns, in BlackRock’s view

We’ve been saying for a few years that climate risk is investment risk.

And by that we mean is companies, sectors will be affected by climate change and as a result, there will be winners and losers in the transition and that’s what we need to capture in portfolios.

A few forecasters have started introducing some aspect of climate change but very few if any incorporate all the aspects and channels by which we think climate change is affecting our return expectations across asset classes.

The first channel is the macro backdrop. The growth that we expect to see over the next 5, 10, 20 years. Growth will be different; inflation will be different in a green transition.

The second is the fact that we are seeing a premium being reflected now for companies or sectors that are better aligned with the transition. That can be measured by the carbon intensity of the sectors and companies as a proxy for how these companies are likely to fare going forward.

We see technology and healthcare as being among the beneficiaries given that producing the healthcare services or the technology requires a less carbon intensive production process. That would be different than it is for energy, utilities and materials.

And the third channel is profitability of companies and earnings, that expectations will be different in a world where you see a climate transition versus a business as usual

The bottom line is the climate transition is a historic investment opportunity. We see climate change and the transition driving capital reallocation and returns across asset classes over the many years to come and that goes at the heart of how we build portfolios.

We’ve been saying for a few years that climate risk is investment risk.

And by that we mean is companies, sectors will be affected by climate change and as a result, there will be winners and losers in the transition and that’s what we need to capture in portfolios.

A few forecasters have started introducing some aspect of climate change but very few if any incorporate all the aspects and channels by which we think climate change is affecting our return expectations across asset classes.

The first channel is the macro backdrop. The growth that we expect to see over the next 5, 10, 20 years. Growth will be different; inflation will be different in a green transition.

The second is the fact that we are seeing a premium being reflected now for companies or sectors that are better aligned with the transition. That can be measured by the carbon intensity of the sectors and companies as a proxy for how these companies are likely to fare going forward.

We see technology and healthcare as being among the beneficiaries given that producing the healthcare services or the technology requires a less carbon intensive production process. That would be different than it is for energy, utilities and materials.

And the third channel is profitability of companies and earnings, that expectations will be different in a world where you see a climate transition versus a business as usual

The bottom line is the climate transition is a historic investment opportunity. We see climate change and the transition driving capital reallocation and returns across asset classes over the many years to come and that goes at the heart of how we build portfolios.

Our selection of sustainable products

We present a selection of our sustainable products across equity, fixed income and multi-asset below to help integrate sustainability into portfolios.

We show top 4 products by AuM in each sub-category. For our full product range, please visit our product screener.

  • Thematic investment solutions allow you to invest across sectors and geographies, in companies set to benefit from transformational forces influencing the future of our global economy and society. We believe these ‘megatrends’ will drive long-term outperformance over global equities.

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    Fund Details Product Brief
    BGF Sustainable Energy Fund One of the longest running and largest energy transition funds in the world. The Fund invests in any company that benefits from the transition to a lower carbon economy. Download
    BGF Circular Economy Fund The Fund, a partnership with the Ellen MacArthur Foundation, invests in companies working to minimise waste, enable recycling and reuse of materials. Download
    BGF Future of Transport Fund Focused on capturing long-term winners of the transition to more electric, autonomous and connected transport. The Fund looks to capture opportunities across the entire value chain. Download
    BGF Nutrition Fund Offers exposure to fast growing consumer trends in nutrition and food, that we believe the market underestimates, seeking ‘disruptive’ transformational businesses. Download

    INDEX

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    Fund Details Factsheet
    iShares Global Clean Energy UCITS ETF Invest in companies involved in clean energy production or the provision of clean energy equipment & technology from both developed and emerging markets. Download
    iShares Smart City Infrastructure UCITS ETF Invest in the next generation of smart cities, gaining diversified access to the future growth potential through exposure to the powerful trend for global urbanization. Download
    iShares Electric Vehicles & Driving Technology UCITS ETF Invest in a secular growth trend to take advantage of the irreversible shift towards electric vehicles. Download
  • From eliminating certain exposures to focusing on the companies leading thetransition to a low-carbon economy, there are many different ways to incorporate sustainable investing into your portfolio. SRI products enable investors to gain increased exposure to the companies with commitments to Environmental, Social and Governance (ESG) business practices. These example ETFs are designed to give clients the most sustainable approach to gaining diversified market exposure.

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    Fund Details Factsheet
    iShares MSCI USA SRI UCITS ETF Gain diversified access to U.S. companies with outstanding Environmental, Social and Governance (ESG) ratings and minimal controversies. Download
    iShares MSCI World SRI UCITS ETF Gain diversified access to Global markets through companies with outstanding Environmental, Social and Governance (ESG) ratings and minimal controversies. Download
    iShares MSCI Europe SRI UCITS ETF Gain diversified access to European companies with outstanding Environmental, Social and Governance (ESG) ratings and minimal controversies. Download
    iShares MSCI Emerging Markets SRI UCITS ETF Gain diversified access to Emerging Markets through companies with outstanding Environmental, Social and Governance (ESG) ratings and minimal controversies. Download
  • Sustainability in fixed income is rapidly gaining momentum reflecting intensifying demand, but also a changing investment landscape. The market evolution and improved data availability have driven product innovation, with more advanced sustainability solutions now available, as exemplified by BlackRock’s own offering of over 35 dedicated sustainable fixed income products spanning sectors, regions, and management style.

    Source: BlackRock, 31 March 2021

  • High yield bonds may offer equity-like returns, yet with lower volatility. By incorporating sustainability into the investment process or index methodology investors can maintain these equity-like returns whilst improving their portfolio sustainability profile.

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    Where to invest Details Factsheet
    BlackRock Global High Yield ESG and Credit Screened Fund The fund takes into account environmental, social and governance characteristics when selecting the Fund’s investments, and seeks to obtain a higher quality ESG profile than other similar products. Download

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    Where to invest Details
    iShares $ High Yield Corporate Bond ESG UCITS ETF Exposure to high yielding non-investment grade bonds issued in U.S. dollar by companies with stronger sustainable business practices than their industry peers.
    iShares € High Yield Corporate Bond ESG UCITS ETF Exposure to high yielding non-investment grade bonds issued in Euros by companies with stronger sustainable business practices than their industry peers.
  • Following an unconstrained investment style allows funds to invest in a wide range of sustainable debt instruments across sectors, asset classes and currencies, seeking to take advantage of the diversification benefits and allowing for a long-term approach.

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    Where to invest Details
    BGF ESG Fixed Income Global Opportunities Fund The CIO-led investment team seek a benchmark free, diversified portfolio, across 40+ countries, 30+ currencies and 2,000+ securities tilted towards higher-rated ESG issuers.
    Source: BlackRock, 31 March 2021
  • With the demand for yield stronger than ever, investors are increasingly looking to emerging market debt for the income and diversification the asset class can bring. As investors look to transition portfolios, going sustainable in emerging markets can bring an improved sustainable profile, higher resilience and lower volatility to portfolios.

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    Where to invest Details Factsheet
    BGF ESG Emerging Markets Bond Fund Part of the Best Fixed Income ESG Fund* range, the Fund is designed as an alternative to traditional EMD funds by incorporating ESG integration.
    Source: Environmental Finance 2019 Awards
    Download
    BGF ESG Emerging Markets Local Currency Bond Fund The fund takes ESG characteristics of the relevant issuer and at least 70% of total assets within the J.P. Morgan ESG Government Bond Index-Emerging Market Global Diversified Download
    BGF ESG Emerging Markets Corporate Bond Fund The fund takes ESG characteristics of the relevant issuer and at least 70% of total assets within the J.P. Morgan ESG Corporate Emerging Market Bond Index Broad Diversified. Download
    BGF ESG Emerging Markets Blended Bond Fund The fund takes ESG characteristics of the relevant issuer and at least 70% of total assets within the J.P. Morgan ESG Blended Emerging Market Bond Index (Sovereign). Download

    INDEX

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    Where to invest Details Factsheet
    iShares J.P. Morgan ESG $ Emerging Markets Bond ETF ESG weighted exposure to investment grade and non-investment grade emerging market bonds issued by sovereign and quasi-sovereign entities in US Dollar. Download
  • The pressing need to accelerate climate mitigation efforts is becoming more and more important to our clients. As investors seek to incorporate climate into their investments, considering a climate approach to government bonds can contribute to the transition.

    INDEX

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    Where to invest Details
    iShares Global Govt Bond Climate UCITS ETF Gain exposure to global, investment grade government bonds with a focus on climate considerations.
    iShares € Govt Bond Climate UCITS ETF Gain exposure to Eurozone, investment grade government bonds with a focus on climate considerations. Offers a climate risk-adjusted approach to Eurozone government bonds.
  • Multi-asset funds are able to invest across the investment landscape and may include equities, bonds and cash. This provides a greater degree of diversification than investing in a single asset class. Many investors look to multi-asset funds to provide a lower-risk investment than a pure equity fund, but with greater prospects for growth than a pure bond fund. Multi-asset funds also provide an opportunity to incorporate extensive E, S and G considerations into your portfolio. BlackRock has built a family of multi-asset funds to give investors the breadth they need to meet their specific needs.

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    Where to invest Details Factsheet
    BGF ESG Multi-Asset Fund One of the largest environmental, social and governance multi-asset funds globally*. The Fund seeks to invest in key ESG themes including renewable energy and social housing.
    Source: BlackRock October 2020
    Download
Learn more about our full sustainable offering

Sustainable solutions for you

This image presents an overview of three sustainable investing approaches reflecting the demand from our clients across differing beliefs, values and requirements. Investors can opt between basic exclusion screening, active ESG inclusion and impact investing.

Avoid: Removing specific companies/industries associated with controversial/objectionable activities.

Advance: Capitalising on long-term sustainability trends by investing in companies with a positive or improving ESG profile.

Risk: The benchmark index only excludes companies engaging in certain activities inconsistent with ESG criteria if such activities exceed the thresholds determined by the index provider. Investors should therefore make a personal ethical assessment of the benchmark index’s ESG screening prior to investing in the Fund. Such ESG screening may adversely affect the value of the Fund’s investments compared to a fund without such screening.

When it comes to dedicated sustainable investing products, investors can opt between basic exclusion screening, active ESG inclusion and impact investing. We offer these three approaches to reflect the demand from our clients across differing beliefs, values and requirements.

ESG: How does your portfolio score?
The BlackRock Portfolio Analysis and Solutions team could help evaluate and advance your portfolio’s ESG score, carbon emissions intensity and business involvement helping to bring you closer to your sustainable investment objectives.

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