Pictet Asset Management has announced the launch of the Pictet-Global Climate Government Bond fund – a new strategy that aims to incorporate climate change, which the firm describes as “the most pressing ESG component currently driving government policies”, into the sovereign investment space.
Domiciled in Luxembourg, the UCITS-compliant fund is a sovereign bond vehicle that invests across developed and emerging markets by allocating capital to countries based on their approach to managing carbon emissions. It is classified as Article 9 under SFDR guidelines and benefits from an Advisory Board of climate experts.
The Pictet-Global Climate Government Bond fund is aimed at institutional and wholesale investors seeking a global government bonds risk/return profile with a reduced carbon footprint. It achieves this by allocating capital to countries whose carbon emissions are falling at the steepest rate in absolute terms and relative to the size of their economy.
According to the firm, this focus may mean leaving out countries which are the mainstay of traditional bond indices offering further diversification benefits for investors. To achieve best investment outcomes, the framework reviews CO2 emissions as the largest contributor to global warming among all the greenhouse gas emissions from a universe of investible countries that are signatories to the Paris Agreement. An external advisory board of climate change experts is consulted to assess the climate change policies and trends of the selected countries.
“While some emerging markets countries can be among the largest relative polluters, they can also make some of the most significant contributions to solving the climate crisis particularly as developing countries often feel the impact of extreme weather events the most,” the firm said in a statement. “Therefore, the strategy rewards countries that are showing a positive trend towards lowering their carbon emissions across both developed and emerging markets.”
Ella Hoxha, senior portfolio manager for the fund, says: “Fixed income investors have a key part to play in providing the capital required to keep climate change in check. While individually, investors have a negligible influence on government policy, collectively they can make a real difference.”
According to Pictet, the investment community currently holds USD88 trillion in bonds issued by governments and their agencies globally.
Hoxha continues “Our strategy rewards bond issuers that are addressing climate concerns, while we will penalise those that are less committed. Consequently, our portfolio will be allocated differently to standard Global Bond indices offering investors a more diversified portfolio with a lower carbon footprint. There are few comparable funds available to investors today.”
The fund’s Advisory Board is composed of leading academics in the field of climate change: Professor Michael Köhl, head of the World Forest Institute at the University of Hamburg and professor for forest management; Dr Joeri Rogelj, director of research and lecturer in Climate Change and the Environment at the Grantham Institute at Imperial College London; and Professor Vaclav Smil, Distinguished Professor Emeritus at the University of Manitoba (Winnipeg) – Faculty of Environment, Fellow of the Royal Society of Canada (Science Academy), and Member of the Order of Canada.