BlackRock has announced an enhancement to the sustainability credentials of its Europe-listed ‘ESG-Screened’ ETFs including additional business activity screening and the adoption of overall carbon reduction targets.

From 1 March, each ETF will target a 30% reduction in total carbon emissions compared to traditional benchmarks for their target markets.

BlackRock offers six ETFs within its ESG-Screened suite with funds targeting stocks from global developed, US, European, eurozone, Japanese, and emerging market universes.

Collectively, the suite houses $15 billion in assets under management while the individual funds are priced with total expense ratios (TERs) ranging between 0.07% and 0.20%.

The ETFs are linked to ‘ESG Screened’ indices from MSCI that are based on the index provider’s flagship benchmarks for large and mid-cap equity performance in the target markets.

The methodology currently excludes violators of UN Global Compact principles, companies that are associated with controversial, civilian, and nuclear weapons, or tobacco, and firms that derive significant revenue from thermal coal or oil sands extraction.

The constituents that remain after these exclusionary screens are weighted by float-adjusted market capitalization.

From 1 March, MSCI will adopt additional rules for the methodology which include removing companies embroiled in severe ESG-related controversies and firms deriving more than 5% of their revenue from palm oil or arctic oil & gas.

Each index will also now target a 30% reduction in total carbon intensity (based on Scope 1, 2, and 3 emissions) relative to its parent universe. Unlike most Paris-aligned benchmarks (PAB), however, the indices will not utilize an optimization weighting process to achieve their lower carbon profile. Instead, the indices will maintain their float-adjusted market capitalization weights and will remove the companies with the largest carbon emissions until the target is met.

Each ETF is expected to maintain its classification as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

The ETFs

iShares MSCI World ESG Screened UCITS ETF (SDWD); AUM $2.2bn; TER 0.20%
iShares MSCI USA ESG Screened UCITS ETF (SASU); $5.1bn; 0.07%
iShares MSCI Europe ESG Screened UCITS ETF (SDUE); $2.6bn; 0.12%
iShares MSCI EMU ESG Screened UCITS ETF (SMUD); $1.4bn; 0.12%
iShares MSCI Japan ESG Screened UCITS ETF (SDJP); $1.5bn; 0.15%
iShares MSCI EM IMI ESG Screened UCITS ETF (SEDM); $2.4bn; 0.18%