Scottish Widows has invested £500m (€570m) in the newly-launched BlackRock Global Corporate ESG Insights Bond Fund.

The UK retirement savings provider – the first investor into BlackRock’s new fund – is initially allocating the money from some of its multi-asset funds, including those used in its workplace defined contribution (DC) default solution.

This is the second fund that BlackRock has built in consultation with Scottish Widows, which helps around six million people across the UK plan for their financial future, and follows the BlackRock Authorised Contractual Scheme (ACS) Climate Transition World Equity Fund that launched in August 2020.

BlackRock’s new ESG fund will seek to provide broad-based exposure to global investment-grade bonds, while seeking to achieve certain ESG-related aims, it announced. It is managed by the manager’s index fixed-income portfolio management team and will aim to deliver a broadly similar level of risk and return as the Bloomberg Global Aggregate Corporate Index GBP Hedged.

Its portfolio objectives target a carbon emissions intensity score that is 50% less than the index.

The strategy uses a set of exclusionary screens to remove certain issuers from the investment universe. These exclude companies involved in activities relating to thermal coal and tar sands; tobacco; violators of the UN Global Compact Principles; and controversial weapons, as well as companies connected with nuclear weapons or involved in the production of civilian firearms.

This strategy reflects growing demand from UK retirement savings providers, wealth managers and private banks for innovative solutions that incorporate climate change-related risks and opportunities as well as the nuances of ESG integration that are unique to bonds.

Maria Nazarova-Doyle, head of pension investments and responsible investments at Scottish Widows, said: “Working on the creation of these specially tailored funds to drive innovation in ESG investing, rather than just picking an existing solution, helps champion the development of more ambitious responsible investment strategies and products.

“In doing so we can help more capital flow into climate-aware investment strategies and contribute to pension schemes having greater choice when it comes to responsible investments.”

Sarah Melvin, head of UK at BlackRock, added: “Increasingly, clients are looking for innovative investment solutions that incorporate climate change-related risks and opportunities.”

She said the strategy reflected the growing demand from UK DC providers seeking to help members incorporate bespoke ESG considerations into their retirement savings, “drawing on the increasing sophistication of ESG data and portfolio construction capabilities”.

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