Blackrock has launched the first climate risk adjust government bond ETF.
The Blackrock iShares € Govt Bond Climate ETF, which begins trading today on Xetra, offers investors exposure to Eurozone government bonds of countries less exposed to climate change risks. The fund uses the FTSE Russell’s ‘Advanced Climate EGBI’ as a benchmark and adjusts country weights based on a forward-looking assessment of climate risk faced by sovereigns in the EMU using three pillars, physical risk, transition risk and resiliency
FTSE Russell says the FTSE Advanced Climate Risk-Adjusted EMU index incorporates a tilting methodology that adjusts index weights according to each country’s relative exposure to climate risk, with respect to resilience and preparedness to the risks of climate change. This includes an assessment of the expected economic impact of transitioning to greenhouse gas emissions levels aligned with the Paris Accord target of less than 2°C by 2050, known as transition risk. An assessment of the physical risk of climate change such as sea level rises and the resiliency of countries to tackle these risks is also assessed.
The Advanced Climate EGBI is on average 26% better aligned to a 2-degree pathway and provides an average annual GHG reduction of 204 MtCO2, or 7% reduction vs the underlying EGBI index.