BlackRock has unveiled three new ETFs in Europe as part of the firm’s growing suite of funds that incorporate environmental, social, and governance (ESG) criteria.
Stephen Cohen, Head of iShares EMEA at BlackRock.
Two of the new ETFs are ESG equivalents of existing flagship iShares UCITS ETFs that provide broad market exposure to eurozone equities and investment-grade, US dollar-denominated corporate bonds.
These funds are designed to serve as portfolio building blocks, offering investors an improved ESG profile while maintaining risk characteristics similar to their non-ESG counterparts.
The third ETF targets exposure to companies that are aligned with the theme of ‘smart cities’ while also utilizing an ESG screening process.
Stephen Cohen, Head of iShares EMEA at BlackRock, commented, “Just as investors have embraced index investing for efficient, transparent, and scalable market exposures in traditional portfolios, ETFs are enabling investors to actively pursue sustainability objectives and take control of their investment outcomes. Providing ESG equivalents to our flagship products while providing innovative thematic products will further steepen the ETF adoption curve, as investors seek out the most efficient market exposure tools with which to navigate markets.”
Carolyn Weinberg, Global Head of iShares Product at BlackRock, added, “The transparency of sustainable indexing methodologies empowers portfolio builders to articulate their ESG goals, as the demand for sustainable portfolios grows. Investors are taking different routes to embed ESG criteria within their portfolios using ETFs. As we extend our global range we are placing a strong emphasis on helping clients make deliberate investment choices to achieve their objectives.”
Eurozone equities
The iShares MSCI EMU SRI UCITS ETF is linked to the MSCI EMU SRI Select Reduced Fossil Fuel Index which is derived from the parent MSCI EMU Index, a reference for large and mid-cap representation across ten developed market countries in the European Economic and Monetary Union (EMU).
Constituent selection is based on data from MSCI ESG Research.
The methodology first excludes companies embroiled in severe ESG-related controversies as well as those involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs, and adult entertainment. Firms with operations that are deemed to be negatively impacting climate change are also removed from the selection pool.
The remaining constituents are then assigned an ESG rating which indicates its ability to deal with ESG risks relative to sector peers. Firms with ratings below ‘BBB’ (average) are excluded.
The process then seeks to form a best-in-class index with risk characteristics that are similar to the parent universe. It does this by selecting companies from each sector with the highest ESG ratings that make up approximately 25% of the total market capitalization of that sector. Stocks are weighted by free float-adjusted market capitalization, subject to a 5% cap.
The fund has been listed on Euronext Amsterdam in euros (Dist: SMDU NA; Acc: SMUA NA). It comes with an expense ratio of 0.20% which is slightly higher than the standard iShares Core MSCI EMU UCITS ETF (CEU LN) which costs 0.12% and houses €1.8 billion.
USD corporates
The iShares $ Corp Bond ESG UCITS ETF is linked to the Bloomberg Barclays MSCI US Corporate Sustainable SRI Index which is based on the parent Bloomberg Barclays US Corporate Bond Index.
The parent index includes investment-grade, fixed-rate, taxable corporate bonds denominated in US dollars and issued by US and non-US companies operating within the industrial, utility, and financial sectors. Eligible issues must have a minimum size of $300 million and a remaining term of at least one year.
The ESG methodology is similar as described above, excluding issuers with activities in non-compliant sectors as well as those firms that do not respect UN Global Compact principles. Companies with MSCI ESG scores below ‘BBB’ (average) are also removed. The remaining constituents are weighted by market value to arrive at the final index.
The fund has listed on Euronext Amsterdam in US dollars (Dist: SUOU NA; Acc: SUOA NA), on SIX Swiss Exchange in US dollars (Dist: SUOU SW; Acc: SUOA SW), and on Deutsche Börse Xetra in euros (Dist: 36BE GY). It comes with an expense ratio of 0.15% which is actually cheaper than the non-ESG iShares $ Corp Bond UCITS ETF (LQDE LN) which costs 0.20% and houses $6.8bn.
Smart cities
The iShares Smart City Infrastructure UCITS ETF tracks the STOXX Global Smart City Infrastructure Index.
The index selects its constituents from a parent universe that consists of stocks from across the market cap spectrum and listed in either developed or emerging market countries.
The methodology harnesses FactSet’s Revere Business Industry Classification System (RBICS) to select firms that derive significant revenue from nearly 50 industries that are considered to be linked to the theme of smart city infrastructure. According to index provider Stoxx, the process aims to select companies that are developing innovative solutions to address challenges faced in transport, housing, energy, waste management, and communications.
Additionally, an ESG screen is employed using data from Sustainalytics. Firms embroiled in severe ESG-related controversies as well as those which are involved with controversial weapons, tobacco, thermal coal, coal-based power generation, or unconventional energy exploration will be removed.
The remaining constituents are equally weighted within the index.
The fund has been listed on Euronext Amsterdam in US dollars (Dist: CT2B NA; Acc: CITY NA) and on SIX Swiss Exchange in US dollars (Dist: CISB SW). It comes with an expense ratio of 0.40%.