BlackRock has launched two actively managed equity ETFs aligned with the transition to a low-carbon economy.

Larry Fink, Chairman and CEO of BlackRock

The BlackRock US Carbon Transition Readiness ETF (LCTU US) and BlackRock World ex-US Carbon Transition Readiness ETF (LCTD US) have listed on NYSE Arca and come with expense ratios of 0.30% and 0.35%, respectively.

The funds invest in large- and mid-cap companies while using proprietary climate analytics to tilt toward firms that are better positioned to benefit as the world moves towards a greener, more sustainable future.

According to BlackRock, the ETFs raised more than $1.5 billion on debut with LCTU becoming the largest ETF launch on record, driven by substantial demand from institutional investors. LCTU and LCTD housed $1.28bn and $586 million in assets respectively, as of the close of trading on 9 April.

Larry Fink, Chairman and CEO of BlackRock, said: “The energy transition is central to all companies’ growth. Winners and losers will emerge in every sector based on each company’s ability to adapt, innovate, and pivot their strategies toward the low-carbon economy. Many of our clients share this conviction and we are helping them be at the forefront of the energy transition through next-generation climate analytics and sustainable strategies. We believe that this combination will lead to better outcomes for them and society as a whole.”

Salim Ramji, Global Head of ETF and Index Investments at BlackRock, added: “Leading global institutions recognize that climate risk is investment risk, and they are increasingly using ETFs as transparent and efficient vehicles to integrate this insight into their portfolios. These ETFs provide an accessible way for millions of investors to invest in the climate transition for the long term and potentially benefit from this tectonic shift.”

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.

LCTU currently holds 352 stocks compared to 1000 for the Russell 1000. Information technology stocks account for over a quarter (27.3%) of the fund’s exposure with significant allocations to health care (13.0%), consumer discretionary (12.5%), communication services (11.1%), and financials (10.0%). Notable positions include Apple (5.2%), Microsoft (4.9%), Alphabet (4.0%), Amazon (3.4%), and Facebook (2.1%).

BlackRock notes that the fund 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, holds nearly 400 stocks, fewer than half the 965 constituents that make up the MSCI World ex USA Index. Stocks from Japan account for the largest weight at 21.4% followed by companies listed in the UK (13.0%), France (9.6%), Canada (9.3%), and Germany (9.0%). Financial (18.5%), industrials (15.8%), consumer discretionary (11.5%), health care (10.8%), and consumer staples (9.3%) lead the sector allocations, while the largest positions are Nestle (2.1%), Roche (1.5%), and ASML (1.4%).

Relative to its benchmark, the fund delivers an 18% reduction in carbon intensity and a 45% reduction in potential carbon emissions from fossil fuel reserves.

(Holdings data as of 9 April.)