Investors should always consider new information as part of their investment process – be it on the likely path of interest rates, company earnings or stock valuations.
That list now needs to include the transition towards a decarbonised economy, a transition that will have a significant impact on investment portfolios as the world witnesses a massive reallocation of capital and the reshaping of global economies.
The speed and shape of the transition are deeply uncertain – and will take decades to play out. The Intergovernmental Panel on Climate Change forecasts an estimated $50–100trn in capital investment being required to rebuild a net-zero global economy by 2050.
A growing number of investors are reallocating investments in their portfolios to navigate this tectonic shift and to position the economy’s transition to net zero. However, many struggle to construct a sustainable portfolio that’s right for them.
Paris-Aligned Benchmarks
To help navigate this economic transformation, new climate-oriented funds are now available to help investors with the low-carbon transition, including exchange-traded funds (ETFs), which offer investors an instant, transparent way to invest with climate in mind.
From reducing carbon exposure to prioritising a low-carbon transition, to targeting themes such as clean energy, ETFs can offer affordability, transparency and convenience when investing in the low-carbon transition. ETFs that track climate-specific Paris-Aligned Benchmarks (PAB) are one such option available to investors.
“Paris-Aligned Benchmark Indexes are designed to support investors seeking to reduce their exposure to transition and physical climate risks and who also wish to pursue opportunities arising from the transition to a lower-carbon economy while aligning with a 1.5°C scenario,” explains Melissa McDonald, global head of ESG and climate indexes at MSCI.
Finding your path
But amid a plethora of options and products, investors still require a guide to cut through the noise and distil the masses of data and information. They need a partner that can help navigate their journey to transition portfolios by offering insights and expertise.
In 2021, Blackrock conducted investor research across 175 UK and European investors and 260 portfolios to understand investors’ approach to the sustainable transition. What emerged were three big challenges occupying investors’ minds: portfolio construction, product selection, and data and analytics.
Challenge 1: Portfolio construction
Some 27% of European investors cite measuring their portfolio’s sustainability features as their biggest challenge when adopting sustainability. Investors need a partner to help translate their sustainability goals and commitments into tangible portfolio allocation ideas.
BlackRock can act as a partner by helping investors with the following goals:
- Evaluate a portfolio’s holistic sustainability profile with a comprehensive suite of sustainable analytics that constantly evolve to address the challenges investors are facing.
- Evolve a portfolio’s sustainability metrics with more advanced analyses such as running risk optimisation, and with sustainable product substitutions across alpha-seeking, factor and index investments.
- Build a new sustainable proposition, based on investors’ sustainability objectives and net-zero commitments.
Challenge 2: Product selection
To help meet investor demand, a significant number of sustainable funds have been launched in Europe in the past year with various methodologies. BlackRock can help investors navigate this changing sustainable investment landscape, and help select products that meet your financial and sustainable investment goals.
Sustainable indexing can combine the traditional rules-based transparency of indexing with new ESG data, providing clarity to investors. iShares sustainable ETFs are built with the same expertise, rigour and high standards as all iShares products.
iShares, powered by BlackRock, can also provide investors with a choice. iShares has more sustainable ETFs registered on more European stock exchanges than any other provider. Investors can scale a consistent approach across their whole portfolio with sustainable indexing alternatives in equities and fixed income across all sectors of the market – from screened exposures to impact investing.
Challenge 3: ESG data and analytics
In recent years there has been a significant increase in the availability and quality of ESG data. Ten years ago, 20% of S&P companies disclosed ESG data. Today, the Governance & Accountability Institute puts that figure at 92%.
BlackRock helps investors access and interpret data. Investors can find and compare consistent ESG metrics for all products on the product pages of BlackRock.com (iShares ETFs and index funds can be found on iShares.com). This includes MSCI ESG Fund Rating, Quality Score, Weighted Average Carbon Intensity and SFDR Article 8 and 9 classifications.
It is through accessing such support, expertise and guidance that investors can feel more comfortable in their ability to address these challenges and best support the low-carbon transition.
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.
This document is marketing material: Before investing, please read the Prospectus and the KIID available on www.ishares.com/it, which contain a summary of investors’ rights.
Risk Warnings
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.
Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.
Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time.
Regulatory Information
This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) and Qualified Investors only and should not be relied upon by any other persons.
