BlackRock has launched a new fixed income ETF targeting the USD investment-grade corporate bond market while incorporating extensive environmental, social, and governance (ESG) screening.
Carolyn Weinberg, iShares Global Head of Product at BlackRock.
The iShares ESG Advanced Investment Grade Corporate Bond ETF (ELQD US) has been listed on NYSE Arca and has come to market with $20 million in assets.
The new product is designed to serve as a sustainable version of BlackRock’s flagship USD corporate bond ETF, the $38.5 billion iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD US).
Methodology
ELQD is linked to the iBoxx MSCI ESG Advanced USD Liquid Investment Grade Index which is based on a universe of investment-grade, US dollar-denominated bonds from corporate issuers that are domiciled in developed markets and have a minimum of $750m in outstanding debt.
Eligible issues include fixed-rate, step-up, and amortizing bonds with at least three years remaining to maturity.
Index construction is based on several filters that screen out issuers according to climate-based, values-based, and ESG rating criteria.
The climate-based screen removes issuers with a tie to fossil fuel industries (such as thermal coal, oil, and gas) including through reserve ownership, related revenues, and power generation. Additionally, firms with high carbon emissions beyond a ‘controversial’ threshold are also eliminated.
The values-based screen removes violators of UN Global Compact principles and issuers with significant business operations linked to adult entertainment, alcohol, civilian firearms, controversial weapons, conventional weapons, for-profit prisons, gambling, genetically modified organisms, nuclear power, nuclear weapons, palm oil, predatory lending, and tobacco.
The issuers that remain after these two screens are assigned ESG ratings from MSCI ESG Research that reflect their ability to manage a wide range of ESG issues relative to sector peers. Issuers with ratings of BB (lower-average) and below are removed.
The remaining issues are weighted by market value subject to a 3% cap per issuer. The index is rebalanced on a monthly basis.
The ETF comes with an expense ratio of 0.18%.
Carolyn Weinberg, Global Head of Product for iShares at BlackRock, said: “We are proud to further expand our line-up today with an ESG fixed income fund. This fund further enables our clients to build strong portfolios customized to their sustainable goals and navigate the transition to a low carbon economy.
“We believe sustainable characteristics are consequential to risk and return. Our sustainable ETF platform aims to democratize sustainable investing and provide choice to our clients in their pursuit to invest with a focus on companies who score well in environmental, social, and governance assessments.”