BlackRock has cut the fees charged on its two actively managed carbon transition ETFs less than one month after the funds launched on NYSE Arca.

Current investors in the ETFs will save approximately $3m in annual fees.

The BlackRock US Carbon Transition Readiness ETF (LCTU US) and BlackRock World ex-US Carbon Transition Readiness ETF (LCTD US) harness the asset manager’s proprietary climate analytics to build portfolios that are positioned to benefit as the world moves towards a greener, more sustainable future.

The funds debuted in early April and were met with considerable demand from institutional investors, raising more than $1.5 billion on debut and LCTU becoming the largest ETF launch on record.

As of 3 May, LCTU and LCTD housed $1.35bn and $600 million in assets respectively.

BlackRock has now enhanced the ETFs’ investment proposition by slashing the funds’ price tags – LCTU’s expense ratio has been reduced from 0.30% to 0.15%, while LCTD’s fee has been cut from 0.35% to 0.20%.

For current investors in the ETFs, the fee reductions represent a combined annual saving of approximately $3m at current asset levels.

Investment approach

LCTU targets US-listed equities and is performance-benchmarked to the Russell 1000 Index, while LCTD invests in developed market stocks outside of the US and is benchmarked to the MSCI World ex USA Index.

The ETFs leverage insights from BlackRock’s Sustainable Investing unit which uses a range of structured and unstructured data sources to assign each company a low-carbon economy transition readiness score. This score is based on industry-specific performance across five climate transition pillars: fossil fuels, clean technology, energy management, waste management, and water management.

The funds seek to maintain similar risk characteristics as their benchmarks while overweighting or underweighting individual companies based on their low-carbon economy transition readiness scores.

According to the ETFs’ prospectus documents, the funds will also consider ‘good governance criteria’ including management structures, employee relations, staff remuneration, and tax compliance when selecting and weighting securities.

BlackRock notes that LCTU delivers a 47% reduction in carbon intensity relative to its benchmark as well as a 55% reduction in potential carbon emissions from fossil fuel reserves.

LCTD, meanwhile, delivers an 18% reduction in carbon intensity relative to its benchmark and a 45% reduction in potential carbon emissions from fossil fuel reserves.