A. Summary
The Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment. The Fund does not commit to holding Sustainable Investments, however, they may form part of the portfolio. The Fund seeks to: (i) enhance exposure to investments that are deemed to have associated positive externalities and limit exposure to investments that are deemed to have associated negative externalities; and (ii) apply the BlackRock EMEA Baseline Screens.
The investment objective of the Fund is to seek to maximise income by primarily investing in debt and income-producing securities while seeking to maintain long term capital growth. The binding elements of the investment strategy are as follows: 1. Enhancing exposure to investments that are deemed to have associated positive externalities, while limiting investments that are deemed to have associated negative externalities; 2. BlackRock EMEA Baseline Screens: The Investment Manager will seek to limit and/or exclude direct investment (as applicable) in corporate issuers which, at the time of purchase, in the opinion of the Investment Manager, have been deemed to have failed to comply with UN Global Compact Principles or have exposure to, or ties with, certain sectors (in some cases subject to specific revenue thresholds):
i) the production of certain types of controversial weapons;
ii) the distribution or production of firearms or small arms ammunition
intended for retail to civilians; iii) the extraction of certain types of fossil fuel and/or the generation of power from them; or iv) the production of tobacco products or certain activities in relation to tobacco-related products; 3. A full list of the BlackRock EMEA Baseline Screens limits and/or exclusions being applied by Investment Managers at any time (including any specific threshold criteria) is available at https://www.blackrock.com/corporate/literature/publication/blackrockbaselinescreens-in-europe-middleeast-andafrica.pdf. The Fund considers PAIs on sustainability factors through the application of the BlackRock EMEA Baseline Screens and its exclusionary policy.
A minimum of 80% of the Fund's total assets will be invested in investments that are aligned with the environmental and/or social characteristics . The Fund may invest up to 20% of its total assets in other investments. The Fund does not currently commit to investing more than 0% of its assets in Sustainable Investments with an environmental objective aligned with the EU Taxonomy.
The Fund does not currently commit to invest in fossil gas and/or nuclear energy related activities that comply with the EU Taxonomy, however.
BlackRock has developed a highly automated compliance process to help ensure that the Fund is managed in accordance with its stated investment guidelines and applicable regulatory requirements. This includes monitoring of the environmental or social characteristics of the Fund in accordance with the relevant methodology.BlackRock uses a number of methodologies to measure how the social or environmental characteristics promoted by the Fund are met.
BlackRock Portfolio Managers have access to research, data, tools, and analytics to integrate ESG insights into their investment process. ESG datasets are sourced from external third-party data providers, including but not limited to MSCI, Sustainalytics, Refinitiv, S&P and Clarity AI. BlackRock applies a comprehensive due diligence process to evaluate provider offerings with highly targeted methodology reviews and coverage assessments based on the sustainable investment strategy of the product. Data, including ESG data, received through our existing interfaces, and then processed through a series of quality control and completeness checks which seeks to ensure that data is high-quality data before being made available for use downstream within BlackRock systems and applications, such as Aladdin. BlackRock strives to capture as much reported data from companies via 3rd party data providers as practicable, however, industry standards around disclosure frameworks are still evolving, particularly with respect to forward looking indicators. As a result, in certain cases we rely on estimated or proxy measures from data providers to cover our broad investible universe of issuers.
BlackRock continues to monitor developments in the EU's ongoing implementation of its framework for sustainable investing and its investment methodologies seeking to ensure alignment as the regulatory environment changes. ESG data sets are constantly changing and improving as disclosure standards, regulatory frameworks and industry practice evolve. BlackRock continues to work with a broad range of market participants to improve data quality. Sustainable investing and understanding of sustainability is also evolving along with the data environment. Industry participants face challenges in identifying a single metric or set of standardized metrics to provide a complete view on a company or an investment. BlackRock has therefore established a framework to identify sustainable investments.
BlackRock applies a high standard of due diligence in the selection and ongoing monitoring of investments made by the Fund for the purpose of compliance with the investment, liquidity and risk guidelines of the Fund, as well as the sustainability risk and ESG criteria and general performance.
Engagement with companies in which we invest our clients’ assets occurs at multiple levels within BlackRock. Where investment teams chooses to leverage engagement, this can take a variety of forms but, in essence, the portfolio management team would seek to have regular and continuing dialogue with executives or board directors of engaged investee companies to advance sound governance and sustainable business practices targeted at the identified ESG characteristics and principal adverse indicators, as well as to understand the effectiveness of the company’s management and oversight of activities designed to address the identified ESG issues. Engagement also allows the portfolio management team to provide feedback on company practices and disclosures.
There is no specific index designated as a reference benchmark to determine whether this Fund is aligned with the environmental and/or social characteristics that it promotes.
B. No sustainable investment objective
This Fund promotes environmental or social characteristics, but does not have as its objective sustainable investment.
The Fund does not commit to investing in Sustainable Investments, however, they may form part of the portfolio. Please refer to 'Section D - Investment Strategy', which describes how the Fund considers PAI on sustainability factors.
C. Environmental or social characteristics of the financial product
The Fund employs a proprietary methodology to assess investments based on the extent to which they are associated with positive or negative externalities and, in doing so, promotes environmental and social characteristics relating to the reduction of carbon emissions and the promotion of positive environmental and social business practices by seeking to enhance exposure to lower carbon emitting issuers and issuers with positive ESG credentials (while seeking to limit exposure to higher carbon emitting issuers and issuers with negative ESG credentials). The assessment of the level of involvement in each activity may be based on percentage of revenue, a defined total revenue threshold, or any connection to a restricted activity regardless of the amount of revenue received.
The Fund promotes environmental characteristics related to the reduction of
environmental pollution by excluding direct investment in companies that are involved in
thermal coal and tar sands extraction, as well as thermal coal-based power generation,
through application of the BlackRock EMEA Baseline Screens.
The Fund promotes social characteristics related to: (a) reduction of the availability of
weapons by excluding direct investment in issuers involved in the production of
controversial weapons and nuclear weapons, and production and distribution of civilian
firearms, (b) better health and wellbeing by excluding direct investment in issuers involved in production and distribution of tobacco; and (c) support for human rights, labour standards, the environment and anti-corruption by excluding direct investment in issuers deemed to have failed to comply with the 10 UN Global Compact Principles, through application of the BlackRock EMEA Baseline Screens. The definition of “involved” in relation to each activity may be based on generating or deriving a revenue from the activity that exceeds a percentage of revenue or a defined total revenue threshold, or any exposure to the activity regardless of the amount of revenue received.
The Fund does not use a reference benchmark for the purposes of attaining the ESG
characteristics that it promotes.
D. Investment strategy
The investment objective of the Fund is to seek to maximise income by primarily investing in debt and income-producing securities while seeking to maintain long term capital growth.
The Fund is actively managed. In order to achieve its investment objective, the Fund will
invest in fixed income transferable securities (i.e. bonds) issued by governments,
government agencies, companies, supranationals worldwide, including in emerging
markets, and asset-backed securities, described further below. In order to maximise
income, the Fund will seek diversified income sources across a variety of such fixed income transferable securities, namely fixed rate, floating rate, inflation-linked, investment grade, non-investment grade and unrated. The Fund may invest up to 60% of its assets in non-investment grade and unrated securities.
The Fund will seek to invest in fixed income transferable securities and asset-backed
securities that are, in the opinion of the Investment Manager, attractively priced, having
regard to top-down asset allocation factors (such as interest rates, global economic trends as well as the credit cycle and geopolitical developments), bottom-up security analysis (identifying fixed-income transferable securities that are undervalued by the market), the contribution to the Fund’s income, leverage and/or subordination, default risk and liquidity as well as risk factors as outlined below. The Investment Manager seeks to add value across a broad investment universe in order to identify attractive investment opportunities while mitigating macroeconomic risks. Macro regime (i.e. periods of time that set the conditions for the economy as a whole) identification informs the top-down asset allocation and takes into account a variety of factors including, but not limited to, inflation, central bank policies and interest rates. From a bottom-up security analysis the Investment Manager will form a view on the underlying issuer’s creditworthiness and valuations of the fixed income transferable securities, as well as credit fundamentals, sector trends, idiosyncratic risk, and market technicals, such as investor flows into the asset class. Having formed a view on the credit of an issuer, the Investment Manager will also consider which tranche in the debt
stack of the issuer is most attractively valued. Additionally, both fundamental and
quantitative analysis are integral to the research process and are considered by the
Investment Manager when identifying potential opportunities and reviewing securities
held in the portfolio.
Currency exposure is flexibly managed, this means that the Investment Manager may be expected to regularly employ currency management and hedging techniques in the Fund. Techniques used may include hedging the currency exposure on the Fund’s portfolio or/and using currency management techniques such as currency overlays to generate positive returns. A currency overlay strategy involves the creation of long positions and synthetic trades in currencies to implement tactical views using currency derivatives, namely forward foreign exchange contracts, currency futures, options and swaps providing exposure to changes in exchange rates. This does not mean that the Fund’s portfolio will always be hedged in whole or in part.
The Fund’s assets will be invested in accordance with the ESG Policy.
The Fund may invest up to 20% in aggregate of its total assets in emerging markets.
The Fund may invest up to 20% of total assets in asset-backed securities (“ABS”). Within this limit collateralised loan obligations (“CLOs”) shall make up no more than 10% of the total assets of the Fund. Other types of ABS that the Fund may invest in include mortgage backed securities, asset-backed commercial paper, commercial mortgage-backed securities, real estate mortgage investment conduits and residential mortgage-backed securities.
The underlying assets of residential mortgage-backed securities and commercial
mortgage-backed securities are residential mortgage loans and commercial mortgage
loans respectively. Other types of ABS include credit card ABS which are backed by credit card receivables, auto ABS which are backed by auto loans and leases, student loan ABS which are backed by student loans, CLOs which are backed by corporate loans and Asset-Backed Commercial Paper (“ABCP”) which can be backed by any type of financial receivable. Certain asset-backed securities may be structured by using a derivative such as a credit default swap or a basket of such derivatives to gain exposure to the performance of securities of various issuers without having to invest in the securities directly. Further information on the ABS the Fund may invest in can be found in the section entitled “Risk Factors” - “Considerations relating to specific types of ABS in which the Fund may invest”.
ABS are typically split into tranches, representing differing levels of risk. The Fund’s
investments in ABS will typically be in investment grade tranches (rated from AAA to BBB-), however up to 10% of the Fund’s total ABS may be in tranches that are rated below investment grade (i.e. a rating below BBB-, as rated by a recognised rating agency including but not limited to Standard & Poor’s, Moody’s, Fitch, DBRS Morningstar or Kroll Bond Rating Agency; or if unrated, deemed to be of equivalent quality in the opinion of the Investment Manager). ABS held by the Fund will comply with the Securitisation Regulation and may be unlisted or be listed or traded on a Regulated Market.
The Fund’s exposure to contingent convertible bonds is limited to 10% of total assets.
The Fund may invest in securities of an issuer in high risk of default (i.e. a credit rating
below CCC-, as rated by a recognised rating agency including but not limited to Standard & Poor’s, Moody’s, Fitch, DBRS Morningstar or Kroll Bond Rating Agency; or if unrated, deemed to be of equivalent quality in the opinion of the Investment Manager) and may remain invested in securities of an issuer that is in default. The Fund’s exposure to securities of an issuer that is either in default or in high risk of default is limited to 10% of the Fund’s total assets.
The binding elements of the investment strategy are as follows:
1. Enhancing exposure to investments that are deemed to have associated positive externalities, while limiting investments that are deemed to have associated negative externalities.
2. BlackRock EMEA Baseline Screens: The Investment Manager will seek to limit and/or exclude direct investment (as applicable) in corporate issuers which, at the time of purchase, in the opinion of the Investment Manager, have been deemed to have failed
to comply with UN Global Compact Principles or have exposure to, or ties with, certain
sectors (in some cases subject to specific revenue thresholds):
i) the production of certain types of controversial weapons;
ii) the distribution or production of firearms or small arms ammunition intended for retail to civilians;
iii) the extraction of certain types of fossil fuel and/or the generation of power from them; or
iv) the production of tobacco products or certain activities in relation to tobacco-related products.
3. A full list of the BlackRock EMEA Baseline Screens limits and/or exclusions being
applied by Investment Managers at any time (including any specific threshold criteria)
is available at https://www.blackrock.com/corporate/literature/publication/blackrockbaselinescreens-in-europe-middleeast-andafrica.pdf
Consideration of principal adverse impacts on sustainability factors
The Fund considers PAIs on sustainability factors through the application of the BlackRock EMEA Baseline Screens and its exclusionary policy.
The Fund takes into account the following PAIs:
• GHG emissions
• GHG intensity of investee companies
• Exposure to companies active in the fossil fuel sector
• Energy consumption intensity per high impact climate sector
• Tonnes of hazardous waste generated by investee companies per million EUR invested,
expressed as a weighted average
• Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
• Lack of processes and compliance mechanisms to monitor compliance with UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
• Exposure to controversial weapons (anti personnel mines, cluster munitions, chemical weapons and biological weapons)
Good governance policy
BlackRock assesses good governance practices of the investee companies by combining proprietary insights and shareholder engagement by the Investment Manager, with data from external ESG research providers. BlackRock uses data from external ESG research providers to initially identify issuers which may not have satisfactory governance practices in relation to key performance indicators (KPIs) related to sound management structure, employee relations, remuneration of staff and tax compliance.
Where issuers are identified as potentially having issues with regards to good governance, the issuers are reviewed to ensure that, where the Investment Advisor agrees with this external assessment, the Investment Advisor is satisfied that the issuer has either taken remediation actions or will take remedial actions within a reasonable time frame based on the Investment Advisor’s direct engagement with the issuer. The Investment Advisor may also decide to reduce exposure to such issuers.
E. Proportion of Investments
A minimum of 80% of the Fund's total assets will be invested in investments that are aligned with the environmental and/or social characteristics.
The Fund may invest up to 20% of its total assets in other investments.
The Fund may use derivatives for investment purposes and for the purposes of efficient portfolio management. For derivatives, any ESG rating or analyses referenced above will apply only to the underlying investment.
The Fund does not currently commit to invest more than 0% of its assets in Sustainable Investments with an environmental objective aligned with the EU Taxonomy.
The Fund does not currently commit to invest in fossil gas and/or nuclear energy related activities that comply with the EU Taxonomy.
The Fund does not commit to making investments in transitional and enabling activities.
The Fund does not commit to holding Sustainable Investments.
Other holdings are limited to 20% and may include derivatives, cash and near cash instruments and shares or units of CIS and fixed income transferable securities (also known as debt securities) issued by governments and agencies worldwide.
These investments may be used for investment purposes in pursuit of the Fund’s (non ESG) investment objective, for the purposes of liquidity management and/or hedging.
No other holdings are considered against minimum environmental or social safeguards.
F. Monitoring of enviromental or social characteristics
BlackRock has developed a highly automated compliance process to help ensure that the Fund is managed in accordance with its stated investment guidelines and applicable regulatory requirements. This includes monitoring of the environmental or social characteristics of the Fund in accordance with the relevant methodology as described in ‘Section G – Methodologies’.
Portfolio Managers have the primary responsibility for complying with the contractual terms of the prospectus and other governing documents for the Fund and are supported by Aladdin, BlackRock’s portfolio and risk management software.
The Portfolio Compliance Group (“PCG”), a group within BlackRock’s Business Operations, is responsible for the coding of the Fund’s investment restrictions, that are capable of being coded, within BlackRock’s pre and post trade compliance monitoring system in Aladdin. Where an investment restriction cannot be coded, a manual process is established for guidelines testing.
Pre-Trade & Post Trade Monitoring
When a trade or order is created, the transaction is reviewed against the Fund’s investment guidelines by the front-end compliance system on a real time basis prior to execution. If a non-compliant condition is detected, the trade or order will be unable to progress further.
Compliance tests are also run on a post trade basis overnight based on the end-of-day positions and reported on a T+1 basis. Compliance exceptions and warnings are identified and escalated for investigation to relevant investment professionals, who will engage with relevant subject matter experts as appropriate to resolve. Identification and investigation of potential items is recorded on an electronic system that contains a comprehensive workflow which provides an audit trail. Appropriate corrective action will be taken as needed to resolve exceptions.
The monitoring of certain ESG characteristics may not be able to be automated due to system functionality or data limitations. Such ESG characteristics are subject to periodic review and monitoring, to ensure that the product adheres to the related commitments.
Breaches are reported as required under our regulatory obligations to the revelant management company, auditor, depositary and regulator.
Where BlackRock delegates part of the management of a Fund to a third-party manager, the third-party manager is responsible for ensuring compliance with the investment guidelines and investment restrictions as per the agreed Investment Management Agreement in place, including those pertaining to the environmental or social characteristics for the Fund. The investment restrictions pertaining to the environmental or social characteristics are generally communicated to the third-party manager which may updated by BlackRock from time to time in line with the environmental and social characteristics of the Fund. When the third-party manager runs a passive strategy, the third-party manager may also monitor whether the environmental or social characteristics are met by tracking a benchmark index embedding these characteristics in its methodology. BlackRock receives a daily feed of the positions held by the third-party manager and runs post-trade compliance checks in accordance with the back-end compliance process previously described. BlackRock also undertakes periodic due diligence on third party manager to ensure the monitoring frameworks in place remain appropriate.
G. Methodologies
BlackRock has adopted the following methodologies in respect of this Fund:
1. The Fund employs a proprietary methodology to assess investments based on the extent to which they are associated with positive or negative externalities. Further details on this proprietary methodology are available at: https://www.blackrock.com/us/individual/insights/blackrock-investment-institute/esg-fixed-income;
2. The Fund applies the BlackRock EMEA Baseline Screens. Further details on the BlackRock EMEA Baseline Screens methodology are available at: https://www.blackrock.com/corporate/literature/publication/blackrock-baseline-screens-in-europe-middleeast-and-africa.pdf.
H. Data sources and processing
Data Sources
BlackRock Portfolio Managers have access to research, data, tools, and analytics to integrate ESG insights into their investment process. Aladdin is the operating system that connects the data, people, and technology necessary to manage portfolios in real time, as well as the engine behind BlackRock’s ESG analytics and reporting capabilities. BlackRock’s Portfolio Managers use Aladdin to make investment decisions, monitor portfolios and to access material ESG insights that can inform the investment process to attain ESG characteristics of the Fund.
ESG datasets are sourced from external third-party data providers, including but not limited to MSCI, Sustainalytics, Refinitiv, S&P and Clarity AI. These datasets may include headline ESG scores, carbon emissions data, business involvement metrics or controversies and have been incorporated into Aladdin tools that are available to Portfolio Managers and employed in BlackRock investment strategies. Such tools support the full investment process, from research, to portfolio construction and modelling, to reporting.
Measures taken to ensure Data Quality
BlackRock applies a comprehensive due diligence process to evaluate provider offerings with highly targeted methodology reviews and coverage assessments based on the sustainable investment strategy (and the environmental and social characteristics or sustainable objective) of the product. Our process entails both qualitative and quantitative analysis to assess the suitability of data products in line with regulatory standards as applicable.
We assess ESG providers and data across five core areas outlined below:
1. Data Collection: this includes but is not limited to assessing the data providers underlying data sources, technology used to capture data, process to identify misinformation and any use of machine learning or human data collection approaches. We will also consider planned improvements
2. Data Coverage: our assessment includes but is not limited to the extent to which a data package provides coverage across our investible universe of issuers and asset classes. This will include consideration of the treatment of parent companies and their subsidiaries as well as use of estimated data or reported data
3. Methodology: our assessment includes but is not limited to consideration of the third-party providers methodologies employed, including considering the collection and calculation approaches, alignment to industry or regulatory standards or frameworks, materiality thresholds and their approach to data gaps.,
4. Data Verification: our assessment will includes but is not limited to the third party providers’ approaches to verification of data collected and quality assurance processes including their engagement with issuers
5. Operations: we will assess a variety of aspects of a data vendors operations, including but not limited to their policies and procedures (including consideration of any conflicts of interest) the size and experience of their data research teams, their training programs, and their use of third-party outsourcers
Additionally, BlackRock, actively participates in relevant provider consultations regarding proposed changes to methodologies as they pertain to third party data sets or index methodologies and submits considered feedback and recommendations to data provider technical teams. BlackRock often has ongoing engagement with ESG data providers including index providers to keep abreast of industry developments.
How data is processed
At BlackRock, our internal processes are focused on delivering high-quality standardized and consistent data to be used by investment professionals and for transparency and reporting purposes. Data, including ESG data, received through our existing interfaces, and then processed through a series of quality control and completeness checks which seeks to ensure that data is of a high-quality before being made available for use downstream within BlackRock systems and applications, such as Aladdin. BlackRock’s integrated technology enables us to compile data about issuers and investments across a variety of environmental, social and governance metrics and a variety of data providers and make those available to investment teams and other support and control functions such as risk management.
Use of Estimated Data
BlackRock strives to capture as much reported data from companies via 3rd party data providers as practicable, however, industry standards around disclosure frameworks are still evolving, particularly with respect to forward looking indicators. As a result, in certain cases we rely on estimated or proxy measures from data providers to cover our broad investible universe of issuers. Due to current challenges in the data landscape, while BlackRock relies on material amount of estimated data across our investible universe, the levels of which may vary from data set to data set, we seek to ensure that use of estimates is in line with regulatory guidance and that we have necessary documentation and transparency from data providers on their methodologies. BlackRock recognizes the importance in improving its data quality and data coverage and continues to evolve the data sets available to its investment professionals and other teams. Where required by local country-level regulations, funds may state explicit data coverage levels.
I. Limitations to methodologies and data
Limitations to Methodology
Sustainable investing is an evolving space, both in terms of industry understanding but also the regulatory frameworks on both a regional and global basis. BlackRock continues to monitor developments in the EU's ongoing implementation of its framework for sustainable investing and is seeking to evolve its investment methodologies to ensure alignment as the regulatory environment changes. As a result, BlackRock may update these disclosures, and the methodologies and sources of data used, at any time in the future as market practice evolves or further regulatory guidance becomes available.
The UN Sustainable Development Goals and sub-targets are used by BlackRock as a list of environmental and/or social objectives. Any assessment will be undertaken strictly in accordance with the methodology set out in the Prospectus. Assumptions associated with the conventional use of the SDGs are not considered as part of the assessment including but not limited to applicable geographical limitations and those commitments that may be limited by time or scope, such as goals that may be applicable only to governments.
Limitations in relation to the data sources are noted below.
Limitations to Data
ESG data sets are constantly changing and improving as disclosure standards, regulatory frameworks and industry practice evolve. BlackRock continues to work with a broad range of market participants to improve data quality.
Whilst each ESG metric may come with its own individual limitations, data limitations may broadly be considered to include, but not be limited to:
• Lack of availability of certain ESG metrics due to differing reporting and disclosure standards impacting issuers, geographies or sectors
• Nascent statutory corporate reporting standards regarding sustainability leading to differences in the extent to which companies themselves can report against regulatory criteria and therefore some metric coverage levels may be low
• Inconsistent use and levels of reported vs estimated ESG data across different data providers, taken at varied time periods which makes comparability a challenge.
• Estimated data by its nature may vary from realized figures due to the assumptions or hypothesis employed by data providers.
• Differing views or assessments of issuers due to differing provider methodologies or use of subjective criteria
• Most corporate ESG reporting and disclosure takes place on an annual basis and takes significant time to produce meaning that this data is produced on a lag relative to financial data. There may also inconsistent data refresh frequencies across different data providers incorporating such data into their data sets.
• Coverage and applicability of data across asset classes and indicators may vary
• Forward looking data, such as climate related targets may vary significantly from historic and current point in time metrics.
For more information about how metrics that are presented with sustainability indicators are calculated, please see the Fund's annual report.
J. Due Diligence
BlackRock applies a high standard of due diligence in the selection and ongoing monitoring of investments made by the Fund for the purpose of compliance with the investment, liquidity and risk guidelines of the Fund, as well as the sustainability risk and ESG criteria and general performance. Portfolio Managers are subject to pre and post trade controls within the investment platform where the funds promote environmental or social characteristics, integrate sustainability into the investment process in a binding manner or have a sustainable investment objective. The Investment Oversight team conducts due diligence engagement with the portfolio managers and oversees internal restrictions that may expand upon requirements set out in the fund prospectus. The Portfolio Managers also comply with related EMEA policies, including Investment Due Diligence policies which have been updated to integrate sustainability risk. Legal and Compliance have implemented a framework to ensure that the relevant policies and procedures are adopted and complied with by all employees, including Portfolio Managers.
The Investment Adviser integrates sustainability risks into the investment due diligence process of the Fund. The portfolio managers of the Fund are primarily responsible for considering sustainability risks. They are subject to an oversight framework within the Investment Adviser and BlackRock's risk management function, RQA group also provides independent reviews of sustainability risks and the compliance team provides further oversight and monitors the ESG requirements relevant to each fund and the investment restrictions for each fund. RQA, serves as the second line of defence in BlackRock’s risk management framework. RQA is responsible for BlackRock’s Investment and Enterprise risk management framework which includes oversight of sustainability-related investment risks. RQA Investment Risk conducts regular reviews with portfolio managers to ensure investment teams are advised of relevant sustainability risks, complementing the first-line monitoring and oversight of sustainability considerations across our investment platform. RQA also has a dedicated Sustainability Risk Team that partners with risk managers and businesses to reinforce this constructive engagement. RQA collaborates with working groups throughout the Investments Platform and with Aladdin Sustainability Lab to advance the firm’s sustainability toolkit through consultation on firmwide data, modelling, methodologies, and analytics. In addition, BlackRock makes data relating to principal adverse impacts available to all portfolio managers and BlackRock integrates consideration of the principle adverse impacts of investment decisions on sustainability factors in the investment due diligence process. For further information, please see ‘Section D – Investment strategy’ above.
K. Engagement Policies
The Fund
The Fund does not use engagement as a means of meeting its binding commitments to environmental or social characteristics or sustainable investment objectives. Engagement may form part of the Due Diligence carried out by the portfolio management team for funds pursuing Fixed Income investment strategies in order to assess how companies manage ESG risks and opportunities and how these impact companies financials. Where applicable, we use engagement to discuss concerns, understand opportunities and share constructive feedback, based on the view that material ESG issues are intractably tied to a business’s long term strategy and fundamental value. Engagement may be undertaken in collaboration with the Business Investment Stewardship team however, this is not always the case and can be undertaken directly. The Fixed Income portfolio management team may also use engagement with corporate treasurers when they are in the process of issuing green and social bonds to ensure a robust issuance.
General
Engagement with companies in which we invest our clients’ assets occurs at multiple levels within BlackRock.
Where engagement is specifically identified by a particular portfolio management team as one of the means by which they seek to demonstrate a commitment to environment, social and governance issues within the context of SFDR, the methods by which the effectiveness of such engagement policy and the ways in which such an engagement policy may be adapted in the event that they do not achieve the desired impact (usually expressed as a reduction in specified principal adverse indicators) would be described in the prospectus and website disclosures particular to that fund.
Where investment teams chooses to leverage engagement, this can take a variety of forms but, in essence, the portfolio management team would seek to have regular and continuing dialogue with executives or board directors of engaged investee companies to advance sound governance and sustainable business practices targeted at the identified ESG characteristics and principal adverse indicators, as well as to understand the effectiveness of the company’s management and oversight of activities designed to address the identified ESG issues. Engagement also allows the portfolio management team to provide feedback on company practices and disclosures.
Where a relevant portfolio management team has concerns about a company’s approach to the identified ESG characteristics and/or principal adverse indicators, they may choose to explain their expectations to the company’s board or management and may signal through voting at general meetings that they have outstanding concerns, generally by voting against the re-election of directors they view as having responsibility for improvements in the identified ESG characteristics or principal adverse indicators.
Separate from the activities of any particular portfolio management team, at the highest level, as part of its fiduciary approach, BlackRock has determined that it is in the best long-term interest of its clients to promote sound corporate governance as an informed, engaged shareholder. At BlackRock, this is the responsibility of BlackRock Investment Stewardship. Principally through the work of BIS team, BlackRock meets the requirements in the Shareholder Rights Directive II (‘SRD II”) relating to engagement with public companies and other parties in the investment ecosystem. A copy of BlackRock’s SRD II engagement policy can be found at https://www.blackrock.com/corporate/literature/publication/blk-shareholder-rights-directiveii-engagement-policy-2022.pdf.
BlackRock’s approach to investment stewardship is outlined in the BIS Global Principles and market-level voting guidelines. The BIS Global Principles set out our stewardship philosophy and our views on corporate governance and sustainable business practices that support long-term value creation by companies. We recognize that accepted standards and norms of corporate governance differ between markets; however, we believe there are certain fundamental elements of governance practice that are intrinsic globally to a company’s ability to create long-term value. Our market-specific voting guidelines provide detail on how BIS implements the Global Principles – taking into consideration local market standards and norms – and inform our voting decisions in relation to specific ballot items for shareholder meetings. BlackRock’s overall approach to investment stewardship and engagement can be found at: https://www.blackrock.com/uk/professionals/solutions/shareholder-rights-directive and https://www.blackrock.com/corporate/about-us/investment-stewardship
In undertaking its engagement, BIS may focus on particular ESG themes, which are outlined in BlackRock’s voting priorities https://www.blackrock.com/corporate/literature/publication/blk-stewardship-priorities-final.pdf
L. Designated reference benchmark
The Fund does not use a reference benchmark for the purposes of attaining the ESG
characteristics that it promotes.
