In previous work we have introduced the AFII Fixed Income Optimisation for Net zero Alignment (FIONA) framework and used it to analyse developed market investment grade ETFs.
In this note we extend the approach to consider sovereigns, and analyse the iShares JPM EMB ETF. It is a US dollar-denominated government bond ETF offered by iShares. It is a passive portfolio, designed to track the J.P. Morgan EMBI Global Core Index (ticker JPEICORE).
By applying FIONA, we show that it is possible to improve the climate footprint of a sovereign emerging market portfolio without a significant impact on its historical performance. Climate improvements are more significant when reweighting between regions.
By considering forward-looking climate data, portfolio enhancement can be focused on transition investment, delivering capital to jurisdictions most in need of investment to progress. This analysis confirms that algorithmic portfolio enhancement methods are useful in the sovereign space, and that it is possible to create passive investments to support transition.