BlackRock has launched a new ETF in Europe offering risk and return characteristics similar to that of the bellwether S&P 500 Index but with a significantly improved ESG profile.
The ETF delivers a significant pickup in ESG performance compared to the regular S&P 500.
The iShares S&P 500 ESG UCITS ETF has been listed on Euronext Amsterdam in US dollars (Ticker: ESPX NA) and on Xetra through a euro-hedged share class (CBUM GY).
The fund’s unhedged share class comes with an expense ratio of 0.07%, while the EUR-hedged share class costs 0.10%.
Methodology
The ETF is linked to the S&P 500 ESG Index which uses data from Sustainalytics to screen out firms from the S&P 500 with significant business activities linked to the tobacco and controversial weapons industries. Companies with weak adherence to the UN Global Compact Principles are also excluded.
The remaining constituents are then assigned an ESG score based on SAM’s ‘Corporate Sustainability Assessment’. This score is either calculated directly by a company completing a comprehensive assessment (together with supporting documents), or – in the absence of this – by using publicly available information.
Those firms with the lowest ESG scores are removed, whilst aiming to maintain 75% of the float-adjusted market capitalization of each Global Industry Classification Standard (GICS) Industry Group within the S&P 500. The result is an index that currently includes 307 constituents considered to be ESG leaders within the US large-cap market.
The index is weighted by float-adjusted market cap. Reconstitution and rebalancing occur annually in April.
According to S&P Dow Jones Indices, the methodology provides an index that is aligned with socially responsible investing values while maintaining a risk-and-return profile comparable to the parent index.
Several issuers in Europe also offer ETFs providing socially responsible exposure to the S&P 500 including UBS, Amundi, Invesco, and State Street Global Advisors. The largest of these is the UBS S&P 500 ESG UCITS ETF (S5SD LN) which houses $3.0 billion in assets and comes with an expense ratio of 0.12%.
Amundi and Invesco also offer smart beta ETFs that first screen the S&P 500 by ESG criteria before equally weighting the chosen constituents.