Legal and General Investment Management is launching a new range of ESG sovereign bond funds.
The first will be the Emerging Markets Government Bond Local Currency Index Fund – will be part of L&G’s wider Future World offering, which offers a range of passive funds within an ESG framework.
This will be followed by two other Future World sovereign debt funds: the L&G Future World ESG Developed Markets Government Bond Index, and the L&G Future World ESG Emerging Market Government Bond (USD) Index fund.
These new funds will offer investors, including DC schemes, an ESG option for investing in sovereign debt. As well as looking at a range of environment social and governance factor the funds will incorporate a new proprietary fourth ESG pillar, referred to as “Geopolitical stability/risk”.
L&G says this risk factor aims to identify risks beyond headline sustainability metrics. It said it believes this provides a more comprehensive risk assessment of investing in government debt.
L&G adds that following research from the World Bank, there is an ingrained income bias that impacts sovereign ESG scores and the fund seeks to eliminate this. The aim is to facilitate a fairer allocation of capital to nations which require debt issuance to advance their economies and reward those countries that are on a path to improving their ESG credentials.
LGIM’s head of the index fixed income desk Lee Collins says this launch comes after 18 months of research and development. “Whilst ESG integration in equities and corporate bonds exposures is a well-trodden path, it’s fair to say that developments in the sovereign ESG sector have lagged behind. We believe that with several unique features, these new products will offer investors a deeper ESG integration in the asset class.”
LGIM has also designed and implemented a proprietary sovereign ESG score momentum factor to be incorporated by the fund range. This provides an ethically consistent means of rewarding countries trending positively but also penalising those countries trending down. It says this helps amplify risk signals which it believes are key to future growth within sovereign ESG.
L&G has collaborating with JP Morgan and Verisk Maplecroft, a leader in sovereign ESG data analysis’s to launch these new products.
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