Scottish Widows has revamped its Corporate Bond Tracker, which is now called ESG Sterling Corporate Bond Tracker Fund.
The tracker, which manages £3.6 billion in assets, will begin tracking an iBoxx ESG bond index in March 2022. To improve the fund’s overall ESG profile and reduce its carbon footprint, a series of ESG screens will be applied to the basic iBoxx GBP Non-Gilts index, the flagship index for UK bonds, using MSCI data.
Issuers involved in business lines or activities such as nuclear weapons, firearms, cigarettes, fossil fuel extractives, fossil-fueled energy generation, and violators of global conventions such as the United Nations Global Compact are excluded from this index. Companies having MSCI ESG Ratings below a certain threshold are also excluded, similar to how investment-grade bond funds exclude issuers with a rating below investment grade.
Scottish Widows head of pension investments and responsible investments Maria Nazarova-Doyle says: “The revamp of our ESG Sterling Corporate Bond Tracker Fund means 85 per cent of our main default fund is now enhanced in line with our responsible investment principles. While much of the focus of ESG integration in the market to date has been on equities, given the asset allocation of default funds such as ours, it’s also essential to consider ESG integration in bonds.
“As ever, our first responsibility is to our customers and ensuring we are looking after their investments for the long term. Tracking iBoxx’s ESG bond index strikes an appropriate balance; it should improve both the ESG characteristics of the fund as well as risk-adjusted return expectations for our customers.”