BlackRock has introduced two new socially responsible equity ETFs in Europe which are aligned with the Paris Agreement’s objective of limiting global warming to 1.5°C above pre-industrial levels.

BlackRock has launched a pair of equity ETFs aligned with the objective of the Paris Agreement.

The iShares S&P 500 Paris Aligned UCITS ETF (UPAB NA) and iShares MSCI World Paris Aligned UCITS ETF (WPAB NA) have listed on Euronext Amsterdam in US dollars and come with expense ratios of 0.10% and 0.20%, respectively.

Income is accumulated within the portfolios.

The funds, which are categorized as Article 9 products under the European Union’s Sustainable Finance Disclosure Regulation (SFDR), provide exposure to US large-cap and global developed equity markets while tilting portfolio weights in order to mitigate exposure to physical and transitional climate-related risks.

Manuela Sperandeo, BlackRock’s EMEA Head of Sustainable Indexing, said: “As the low-carbon transition continues to transform market return expectations, we believe clients are best served by being at the forefront of that transition. This will require investors to embrace new strategies, and ETFs are playing a central role as foundational building blocks for people seeking out affordability, transparency, and convenience. Our focus remains on providing a broad and deep set of sustainable investment tools that help investors make informed choices.”

Methodologies

The iShares S&P 500 Paris Aligned UCITS ETF tracks the S&P 500 Paris Aligned Climate Sustainability Screened Index which is based on the bellwether S&P 500.

The index first screens out violators of international norms as well as businesses involved in certain activities such as oil and gas, thermal coal, controversial weapons, and high carbon electricity generation.

The methodology uses data from Trucost, a business of S&P Global, to determine the carbon intensity of each remaining stock using greenhouse gas emissions for the entire value chain of that company.

Stocks are then weighted using an optimization process that reduces total carbon intensity by 50%, instantly aligning the index with the Paris Accord objective to cut emissions by 50% by 2030, while minimizing deviations in constituent weights relative to the S&P 500.

Furthermore, the methodology strives for at least a 7% annual decarbonization moving forward which is achieved during future rebalancing periods.

The iShares MSCI World Paris Aligned UCITS ETF, meanwhile, is linked to the MSCI World Climate Paris Aligned Benchmark Select Index which is derived from the MSCI World Index universe of large and mid-cap stocks across 23 developed markets globally.

The index also reweights securities based on risks and opportunities associated with the climate transition while seeking to minimize exclusions from the parent index.

MSCI harnesses a diverse range of data and analytical tools to aid in index construction. This includes scope 1, 2, and 3 carbon emissions, green revenues, and the index provider’s own proprietary low carbon transition score and climate value-at-risk measures.

The index delivers an immediate 50% reduction in weighted average carbon intensity as well as a further 10% annual decarbonization going forward.

In addition, the index aims to achieve secondary objectives such as maximizing exposure to sustainable energy providers, increasing the weight of companies with clear carbon reduction targets, minimizing fossil fuel exposure, and reducing climate value-at-risk by 50%.

Crowded market

Climate-change strategies have been a favoured area of ETF product development recently with several other issuers offering funds in this category.

Lyxor was first to market in Europe with a suite of Paris-aligned equity ETFs that were introduced in June of last year. The firm offers global, US, and eurozone Paris-aligned equity ETFs with expense ratios of 0.20%. The suite houses just over $1bn in assets.

Fellow French issuer Amundi followed up with its own Paris-aligned suite just one week later, targeting global, European, and eurozone equity markets and landing with expense ratios between 0.18% and 0.25%.

Franklin Templeton debuted two Paris-aligned ETFs the following month which are based on US and European equity benchmarks and come with expense ratios of 0.15%.

Most recently, UBS unveiled a full suite of Paris-aligned equity ETFs earlier this month that are linked to MSCI indices targeting global developed, US, European, eurozone, and Japanese equity markets. They come with expense ratios between 0.12% and 0.20%.