Developments and commentary in and around the ESG investment space.

The University of Oxford And BlackRock
Oxford University Endowment Management has chosen BlackRock to create an iShares Developed World Fossil Fuel Screened Equity Index to further its aims of divesting from fossil fuels in all its investment holdings.

Since April, the university has been researching the best equity investment products which fit these goals. Its decision is a feather in the cap for BlackRock and partly based on the fiduciary giant’s “capabilities in developing innovative products and solutions,” the university said. The US firm has taken more of a stand recently, though not without its sceptics, in wanting to lead the asset management industry into aligning all investments with baseline sustainability measures.

It manages around $570 billion of assets using some form of environmental, social or governance screening out of a total of $7.8 trillion managed globally. Those baseline screenings now also include avoiding exposure to companies or sectors associated with nuclear and civilian weapons, tobacco, thermal coal, tar sands and companies that are not compliant with the United Nations Global Compact principles, according to the firm.

Meanwhile, university endowment funds, Yale in the US chief among them, have been at the vanguard of investor activism to ditch coal, oil and gas holdings more rapidly than some stakeholders would like. Oil majors are known for their generous dividends for income investors, and moral arguments have been made for sticking together as shareholders to help the industry transition more quickly.

Sarah Melvin, head of UK at BlackRock, said the group was pleased to be chosen by the UK university “to design and launch a new product, which incorporates precise, transparent, exclusionary screens supporting their divestment objectives,” she said.

Explicitly, the new fund will bolster the university’s restrictions (direct and indirect) on investing in fossil fuel exploration and extraction companies (including coal, oil and gas,) in addition to existing restrictions the institution has on thermal coal and tar sands.

“Investing sustainably is wholly integrated in our company culture and investment process,” Sandra Robertson, CEO and CIO of Oxford University Endowment Management, said.

The endowment fund has been weaned off fossil fuels over the last 12 years, moving towards actively funding groups investing in climate change solutions. With BlackRock, “we wanted to similarly design an equity index solution that reflects this ambition," Robertson said.

UK Green Gilt
Chancellor Sunak announced yesterday that the UK government would launch its first green bond issuance. While few specifics were offered, the UK decision follows a path taken already in the Netherlands, France and Germany over the past couple of years to launch “green gilts”. Green gilts or "sovereign green bonds" are a type of government borrowing to fund low-carbon transition projects.

"As we go into 2021, the UK will want to take world leadership in green finance as it hosts the COP 26 in Glasgow, and as the country emerges from the COVID-19 induced recession, it will be essential to use green bonds to kick-start investment and provide the capital to fund their investment agenda," said Thomas Archer, Nikko AM's green bond product specialist.

The asset manager, along with others growing the green finance space, called it "a major step forward" for the UK. 

Sunak also set 2025 as the year in which all large UK firms and financial institutions must disclose the threat of climate change to their business. A Treasury led new green taxonomy for investors is also slated for next year. In other announcements, governor Andrew Bailey said that the BoE would launch its COVID-delayed climate stress test for financial institutions by June next year.