Pictet Asset Management has launched a government bond fund to incorporate climate change, 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 Sustainable Finance Disclosure Regulation 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, the asset manager explains. 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. This focus may mean leaving out countries which are the mainstay of traditional bond indices offering further diversification benefits for investors. 

The framework reviews carbon dioxide 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 2015 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-market countries can be among the largest relative polluters, they can also make some of the most significant contributions to solving the climate crisis as developing countries often feel the impact of extreme weather events the most. 

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.” The investment community currently holds US$88 trillion in bonds issued by governments and their agencies globally.

“Our strategy rewards bond issuers that are addressing climate concerns, while we will penalize those that are less committed,” she notes. “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 is registered for sale in Austria, Belgium, Germany, Spain, Finland, France, the United Kingdom, Greece, Italy, Liechtenstein, the Netherlands, Portugal, Sweden and Singapore.