BlackRock has announced the introduction of the ‘iShares Sustainable Core’ range – a suite of sustainability-focused equity and bond ETFs designed to be used as the foundation blocks of investors’ portfolios.

MSCI ESG Research is the largest provider of ESG ratings globally.
The range encompasses six existing products and one newly launched fund.
The funds are aimed at portfolio managers looking to construct low-cost, broadly diversified portfolios with an emphasis on maintaining a robust environmental, social, and governance (ESG) profile.
The suite is composed of four equity and three fixed income products.
ESG equity
The equity ETFs track MSCI ESG Extended Focus indices and provide exposure to US large-cap, US small-cap, international (EAFE), and emerging market stocks.
Each underlying reference is a variant of a core MSCI equity benchmark which also seeks to enhance the ESG characteristics of the parent index. It does this by applying several levels of screening based on data from MSCI ESG Research.
First, the index methodology excludes any issuer deemed to be involved in severe ESG controversies. Second, firms associated with the production of firearms, controversial weapons, and tobacco are excluded. Finally, the remaining issuers are assigned an MSCI ESG rating based on an analysis of the issuer’s willingness and ability to deal with ESG risks occurring within its sector.
The indices then utilise an optimization weighting model that seeks to maximize the ESG profile of each index while adhering to constraints on the allowable tracking error of each index relative to its parent.
The ETFs, along with their expense ratios, are as follows:
iShares ESG MSCI USA ETF (ESGU US) – 0.15%
iShares ESG MSCI USA Small-Cap ETF (ESML US) – 0.17%
iShares ESG MSCI EAFE ETF (ESGD US) – 0.20%
iShares ESG MSCI EM ETF (ESGE US) – 0.25%
Fixed income ESG
The fixed income ETFs include the previously launched iShares ESG 1-5 Year USD Corporate Bond ETF (SUSB US), providing exposure to shorter duration corporate bonds denominated in US dollars; the iShares ESG USD Corporate Bond ETF (SUSC US), providing exposure to USD corporate bonds from across the yield curve; and the newly launched iShares ESG US Aggregate Bond ETF (EAGG US).
The existing funds come with expense ratios of 0.12% and 0.18% respectively and track investment grade bond indices created through a partnership between Bloomberg Barclays and MSCI. Each index follows a similar process to the equity funds, screening out companies involved in certain ‘unethical’ operations, before using an optimization process to enhance its ESG profile while maintaining similar risk characteristics to its parent index.
The new fund, which is cheaper at just 0.10% pa, is linked to the Bloomberg Barclays MSCI US Aggregate ESG Focus Index, which is a variant of the well-known Bloomberg Barclays US Aggregate Bond Index. The index – which adheres to the same ESG methodology – consists of Treasury securities, government agency bonds, mortgage-backed bonds, corporate bonds, and a small amount of foreign bonds traded in US dollars. Securities must be rated investment grade to be included in the parent index.
Similar to its parent index, the fund’s index shows an average duration of 6.0 years. Two-thirds of the total exposure is made up of a combination of US Treasuries (38.6%) and MBS Pass-Through securities (28.0%). Nearly three-quarters (72.8%) of the total weight is dedicated to bonds rated AAA, followed by bonds rated BBB (14.5%) and those rated A (9.8%).
ESG resilience
Mark Wiedman, Senior Managing Director, Global Head of iShares and Index Investments, said, “The iShares Core Series gave rise to a new generation of simple, low cost and efficient investment portfolios. The iShares Sustainable Core adds purpose to the mix, and is intended to help investors to match their values to their investments without giving up performance.”
Wiedman said he “expects investors to adopt the iShares Sustainable Core with the same enthusiasm as the iShares Core Series.”
Brian Deese, Head of Sustainable Investing at BlackRock, added, “A growing body of research underscores that strong ESG performers are more resilient and investing in them allows investors to align their values and beliefs, without sacrificing return. Indeed, with increased transparency on the sustainability profile of their investment profiles, we can help investors better understand potential ESG-related risks and opportunities associated with their investments.”