BlackRock has further diversified its offering of sustainable exposures in Europe with the launch of two new equity factor ESG ETFs on Xetra.
BlackRock extends ESG offering with momentum and value factor ETFs
The funds – the iShares MSCI World Momentum Factor ESG UCITS ETF (CBUH GY) and iShares MSCI World Value Factor ESG UCITS ETF (CBUI GY) – provide exposure to global stocks with strong environmental, social and governance credentials that also exhibit characteristics of momentum or value.
The funds, which are scheduled to be cross-listed on Euronext Amsterdam later this week, incorporate large and mid-cap stocks from across 23 developed markets countries.
Momentum is measured by price momentum, while value is measured by a blend of book value to price, 12-month forward earnings to price, and dividend yield.
Specifically, the funds are linked to the MSCI World Momentum ESG Reduced Carbon Target Select and MSCI World Value ESG Reduced Carbon Target Select indices developed by MSCI.
The indices are constructed by selecting constituents from the regular MSCI World Index through an optimization process that aims to maximize exposure to either momentum or value while simultaneously hitting a series of specific ESG and climate-related objectives and at the same time minimizing tracking error, all with respect to the parent MSCI World index.
The indices are derived from the parent universe via a multi-step process that first excludes companies that are involved in industries that have a high potential for negative social and/or environmental impact. These include controversial weapons, nuclear weapons, civilian firearms, tobacco, thermal coal and oil sands. Companies that fail to comply with the United Nations Global Compact Principles are also excluded.
The process then utilises climate data to define both the greenhouse gas emissions and potential future emissions of each company that remains in the universe. A company’s potential emissions are derived from a measure of its fossil fuel reserves.
Armed with this information, the companies are put through an optimisation algorithm that aims to maximise each index’s exposure to the target factor (i.e. momentum or value) while simultaneously seeking to improve the ESG score of the index by least 20% compared to the parent MSCI World, reduce its carbon emission intensity by at least 30% and reduce the potential emissions per dollar of market capitalization by at least 30% while limiting tracking error through the use of country, sector and individual security caps.
The resultant indices have substantially fewer constituents than their non-ESG-adjusted factor index equivalents – the MSCI World Momentum ESG Reduced Carbon Target Select Index has 179 constituents compared to the MSCI World Momentum Index which has 347 constituents, while the MSCI World Value ESG Reduced Carbon Target Select Index has 234 constituents compared to the MSCI World Value Index which has 968 constituents – but exhibit a materially improved ESG profile, as per their objectives.
Each fund has been seeded with $5 million and is listed with a USD accumulating share class.
The total expense ratio of both funds is 0.30%.