BlackRock launched a new indexed fund that will invest in Australian bonds with an ESG focus, with backing from a $21 billion government superannuation fund.
VicSuper seeded the fund and partnered with BlackRock.
BlackRock Australia's head of fixed income Craig Vardy and his team will manage the unlisted fund, called the ESG-focused Australian Bond Index (ESGABI) fund.
It is the first ESG Australian bond fund, and the first indexed ESG fund with a dedicated Australian ESG benchmark, BlackRock Investment Management Australia said.
The benchmark is a customised Bloomberg Barclays MSCI SRI ESG-Weighted Australian Aggregate AU$100M Index.
It excludes tobacco, alcohol, gambling, military weapons, civil firearms, nuclear power, adult entertainment, genetically modified organisms and fossil fuel reserves using MSCI's SRI index
Then the issuer weights are tilted based on the current MSCI ESG Rating, as well as its MSCI ESG Rating momentum.
"We have reached an inflection point in sustainable investing. ESG has come to the forefront and can be implemented broadly across most asset classes without foregoing risk-adjusted returns," Vardy said.
The ESG-focused Australian Bond Index fund is a passive investment strategy designed for ESG-aware investors seeking a core fixed income exposure to Australian-dollar securities, Vardy said.
"From a fee perspective, investors can now invest sustainably at the same low fee as non-ESG fixed income passive solutions. We believe investors can future-proof portfolios by considering sustainable investment alternatives," he said.
BlackRock Australasia head and managing director Dominik Rohe said: "Our goal is to be at the forefront of sustainable investing solutions for Australasian investors. As a fiduciary to our clients, we dedicate ourselves to protecting and growing the value of our clients' assets, and we believe business-relevant sustainability factors can contribute to a company's long-term financial performance.
"Sustainable investing is going mainstream with the support of improved data and technology, including new portfolio analytics, transparent ESG data, and model portfolios. The launch of our ESGABI fund reflects the growing demand from our clients for sustainable investing solutions."