BlackRock has announced plans to launch six new iShares ESG ETFs in Europe as part of the firm’s ‘Core’ range of low-cost funds designed as primary building blocks for investors’ portfolios.
Following the launch of the six new funds, BlackRock will offer a total of 28 sustainable ETFs in Europe.
The ‘Enhanced ESG’ ETFs will provide broad equity exposures while tilting towards firms with strong environmental, social, and governance characteristics and lowering the carbon intensity scores of their portfolios.
The funds, which track ESG versions of some of MSCI’s best-known single-country and regional indices, will target global, Europe, eurozone, US, Japan, and emerging market equity universes.
Each underlying index first screens out companies from its parent index that are involved with controversial and nuclear weapons, civilian firearms, tobacco, thermal coal, and oil sands as well as those implicated in severe ESG-related controversies and those in violation of the United Nations Global Compact principles.
Remaining constituents are weighted so as to enhance the index’s sustainability exposure by tilting towards firms with robust ESG ratings as determined by MSCI ESG Research. The rating – one of seven grades from ‘AAA’ to ‘CCC’ – indicates how well each firm manages key ESG issues relative to industry peers.
The weighting of constituents is undertaken using an optimization process that aims to maximize exposure to the ESG factor while maintaining sector diversification and controlling the index’s tracking error relative to its parent. Additionally, the optimization process aims to reduce the carbon intensity score of the index by 30%.
Remy Briand, Head of ESG at MSCI, commented, “From our engagement with asset owners and wealth managers, MSCI understands many investors wish to target high ESG exposure with a reduction to carbon or controversial businesses while targeting a similar profile to the underlying market capitalized weighted index.
“We continue to expand our capabilities in ESG ratings, tools and indexes for a growing number of clients who want to better integrate ESG into their investment processes for measurable and transparent results and to power better investment decisions. MSCI is pleased to provide iShares with additional ESG indexes to help expand its sustainable core series to offer a wide range of ESG solutions.”
The funds will be listed on London Stock Exchange on 12 March 2019 and will be offered with both distributing and accumulating share classes. The global, US, Japan, and emerging market funds will trade in US dollars, while the European and eurozone ETFs will trade in pound sterling.
The ETFs are as follows:
iShares MSCI USA ESG Enhanced UCITS ETF (EEDS LN – Distr; EEUS LN – Acc); TER 0.10%
iShares MSCI Europe ESG Enhanced UCITS ETF (EEUD LN; EEUA LN); TER 0.15%
iShares MSCI EMU ESG Enhanced UCITS ETF (EMUD LN; EEUM LN); TER 0.15%
iShares MSCI World ESG Enhanced UCITS ETF (EEWD LN; EEWA LN); TER 0.20%
iShares MSCI Japan ESG Enhanced UCITS ETF (EEJD LN; EEJA LN); TER 0.20%
iShares MSCI EM ESG Enhanced UCITS ETF (EEDM LN; EEEM LN); TER 0.23%
BlackRock unveiled its Core ESG brand in October 2018 which initially encompassed six existing products and one newly launched fund.
BlackRock quickly expanded the suite with the introduction of a further six equity ETFs linked to MSCI indices that screen out firms with inadequate ESG ratings before weighting remaining constituents by market cap.
Carolyn Weinberg, Global Head of iShares Product, at BlackRock, commented, “Sustainable investing means different things to different investors. Some want to simply avoid exposure to certain types of companies, while others are looking to advance specific sustainable outcomes.
“Our Sustainable Core ETF range is about setting a global catalyst for choice and transparency that allows investors to apply ESG considerations into the foundation of their portfolios. With these new funds, iShares has established the industry’s most comprehensive family of funds, accounting for the variety in investment objectives and preferences that our clients have expressed.”
BlackRock’s sustainable ETF suite, numbering 28 funds across both equity and fixed income exposures, gathered more than $1.4 billion in net inflows during 2018.
The firm believes this may be just the tip of the iceberg as it predicts European ESG ETF assets to grow twenty-fold to $250bn by 2028, up from $12bn today, while ESG ETFs globally are expected to add $400bn in net assets over the same period.
BlackRock points to Greenwich Associates’ research that shows almost 60% of institutional funds and insurance companies surveyed expect to have more than 50% of their assets managed with ESG criteria within five years.
Philipp Hildebrand, Vice Chairman, BlackRock, said, “Europe is at the forefront of the sustainable investment movement. Across the region, sustainable investing is believed to be the future of investing and many European clients are pursuing the twin goals of addressing the world’s societal and environmental needs while also generating long term risk-adjusted returns needed to fulfill their financial goals.”
Stephen Cohen, Head of iShares EMEA at BlackRock, added, “The way portfolios are built in Europe is undergoing an upheaval with investors demanding more when it comes to transparency, value, and choice. As many investors reflect on the ESG characteristics of their portfolios, we will continue to look for ways to make the expression of sustainability preferences easy and cost-efficient while providing the tools that shine a light on the ESG profile of the ETFs they invest in.”