LGIM to launch ‘materially divergent’ sovereign ESG index funds

Using data and analysis from Verisk Maplecroft


Legal & General Investment Management (LGIM) is developing a suite of sovereign ESG index funds using data and analysis from Verisk Maplecroft.

The asset manager will use Verisk Maplecroft’s sovereign ESG analytics, which draw on thousands of different geospatial, unstructured, structured and expert-scored subnational and national indicators, to create products “that seek to materially diverge from conventional selections and issuance-weighted allocations”, a statement on the announcement said.

“There are an increasingly large set of clients who would like to see deeper ESG integration for sovereign debt,” Lee Collins, head of index fixed income at LGIM, added.

“It is an opportunity to create indices consistent with clients’ values and this collaboration will help us achieve that.”

The integration of ESG into sovereign bond investments is evolving, as many investors begin to focus on how best to integrate ESG into this asset class. According to Verisk Maplecroft, government debt is key for markets both in terms of sheer volume and in setting a baseline for risk premia in other asset classes. Governments, not companies, are either directly responsible for, or ultimately guarantee, almost all aspects of ESG, it said.

Research from the analytics company shows that ESG factors are increasingly relevant to market pricing, whether as direct drivers or leading indicators of material risks and opportunities.

James Lockhart Smith, VP of markets and ESG at Verisk Maplecroft, commented: “The scale of fast-evolving environmental risks, as well as persistent social and governance deficits, has increased the need for sovereign debt investment products that use ESG criteria in an impactful way.”

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