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. We believe this transition will have a significant impact on investment portfolios as we witness a massive reallocation of capital and reshaping of global economies.
The speed and shape of the transition are deeply uncertain, and it will take decades to play out. An estimated $50trn to $100trn in capital investment is required to rebuild a net-zero global economy (one that emits no more greenhouse gas than it removes from the atmosphere) by 2050.1
Many investors are reallocating investments in their portfolios to navigate this tectonic shift and to position for the economy’s transition to net zero.
However, many investors struggle to construct a sustainable portfolio that’s right for them. As an asset manager, BlackRock’s fiduciary role includes helping our clients navigate this economic transformation.
Finding your path
In 2021, we conducted investor research across 175 UK and European investors and 260 portfolios to understand investors’ approach to the sustainable transition.2
Three big challenges occupied 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.3 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 optimization. Evolve your portfolio with sustainable product substitutions across alpha-seeking, factor and index investments. ➡ Build: a new sustainable proposition, based on investor’s sustainability objectives and net zero commitments.
Challenge 2: Product selection:
To help meet investor demand, a significant number of sustainable funds have launched in Europe in the past year with various methodologies.4 iShares, powered by BlackRock, can help you 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 offers sustainable ETFs built with the same expertise, rigour and high standards as all our iShares products. iShares can also give you choice. We have more sustainable ETFs registered on more European stock exchanges than any other provider (AUM),5 across around 65 ETFs in Europe.6 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 availability and quality of ESG data. A decade ago, 20% of S&P companies disclosed ESG data. Today, that percentage is 92%.7 At iShares, we help investors access and interpret data. Investors can find and compare consistent ESG metrics for all index funds on iShares.com. This includes, for example, MSCI ESG Fund Rating, Quality Score, Weighted Average Carbon Intensity and SFDR Article 8 and 9 classifications.
Spotlight: Paris-Aligned Benchmarks (PAB)
New climate-oriented funds are now available to help investors with the low-carbon transition, including 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 for the low carbon transition. ETFs which track climate-specific Paris-Aligned Benchmarks (PAB) are one such option available to investors. Melissa McDonald global head of ESG and climate indexes at MSCI: “Paris Aligned Benchmark indices 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.”
To learn more about the low-carbon transition, please search: iShares sustainable investing
This article was first published in ESG Unlocked: Europe out in front, an ETF Stream report
1 Source: Intergovernmental Panel on Climate Change (IPCC), “Mitigation Pathways Compatible with 1.5°C in the Context of Sustainable Development,” in An IPCC Special Report on the impacts of global warming, 2018.2 Source: The insights are based on 260 portfolios BPAS received from wealth investors in Nordics, UK, France, Italy, Iberia, Germany, Austria, Eastern Europe, Switzerland, and Netherlands as well as 108 client surveys BPAS received from wealth investors in UK, France, Italy, Germany, Austria, Eastern Europe, Switzerland, and Netherlands in 2021. Please note, these results are based on the sample we collected and, therefore, should not be seen as fully representative of the EMEA Wealth industry. Sample biases will be linked to the specific client choices as well as the sample size of portfolios and surveys collected in each region. Funds are categorised as sustainable based on references to sustainability in their names. Source: BlackRock, September 2021.3 This insight is based on 260 portfolios BlackRock Portfolio Analysis & Solutions team (BPAS) received from wealth investors in Nordics, UK, France, Italy, Iberia, Germany, Austria, Eastern Europe, Switzerland, and Netherlands as well as 108 client surveys BPAS received from wealth investors in UK, France, Italy, Germany, Austria, Eastern Europe, Switzerland, and Netherlands in 2021. Please note, these results are based on the sample we collected and, therefore, should not be seen as fully representative of the EMEA Wealth industry. Sample biases will be linked to the specific client choices as well as the sample size of portfolios and surveys collected in each region. Source: BlackRock, September 2021.4 Source: Morningstar, 31/12/2021.5 Source: BlackRock, Bloomberg, 31/12/2021.6 Source: BlackRock, 31/12/2021.7 Source: Governance & Accountability Institute press release, 16 November 2021.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.This report is provided for information and educational purposes only. The information herein must not be relied upon as a forecast, research, or investment advice. BlackRock is not making any recommendation or soliciting any action based upon this information and nothing in this document should be construed as constituting an offer to sell, or a solicitation of any offer to buy, securities in any jurisdiction to any person. Investing involves risk, including the loss of principal.Important Information This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons.Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 02020394. For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.© 2022 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK and SO WHAT DO I DO WITH MY MONEY are trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. 2517063.
