THINKING SUSTAINABLY

THE CHALLENGE

How can I adapt my portfolio to fulfil sustainability objectives?

Sustainable investing has come to the fore, with heightened pressure from regulators to ensure that pension funds and insurers incorporate sustainability into investment decision-making.

Pension funds and insurers increasingly need to show that they can not only meet their liabilities, but also that they are making a positive contribution to society.

THE ACTION

It has become important to embed sustainability ratings and capital market assumptions for sustainable assets as a third dimension to add to the existing primary risk and return objectives.

The proliferation of index building blocks featuring different ESG criteria is empowering investors to start implementing sustainable decisions into their investment process, whilst keeping aligned to their strategic asset allocation and investment goals.

BlackRock is helping investors transition to sustainable investments by both decomposing ESG portfolio scores and building portfolios which are positioned to capture Sustainable opportunities.

Carbon Emissions Intensity (Metric tonnes CO2/Sales)

Carbon Emissions Intensity (Metric tonnes CO2/Sales)

Source: BlackRock, MSCI ESG Research as at May 2020.
For illustrative purpose only.

Case studies are for illustrative purposes only; they are not meant as a guarantee of any future results or experience, and should not be interpreted as advice or a recommendation.

THE OUTCOME

In this example, transitioning the portfolio strategic asset allocation to sustainable benchmarks of equivalent exposures resulted in a 60% reduction of carbon emissions, which is equivalent to 23 cars driven each year.

Overall portfolio risk also decreased which could have been partly driven by the increased exposure to companies which are adopting stronger working practices, and therefore exhibiting greater quality factor characteristics.

WHY INDEXING?

Notably, different sustainable approaches above are associated with different levels of tracking error. The ‘Enhanced’ range, for example, seeks both a relatively low level of tracking error as well as a better sustainable profile such as higher ESG score and lower carbon emissions.

The rules-based approach to defining the universe and standards for ESG characteristics within indexing enables investors to incorporate sustainability criteria in a clear, concise and low-cost manner whilst remaining aligned to their investment policy benchmarks.

Risk: This information should not be relied upon as research, investment advice, or a recommendation regarding any products, strategies, or any security in particular. This is for illustrative and informational purposes and is subject to change. It has not been approved by any regulatory authority or securities regulator.

The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

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