BlackRock steps up ESG drive with six new low-carbon funds

The world's largest asset manager BlackRock has launched new exchange-traded funds (ETFs) that screen out exposure to "controversial" sectors, improve environmental social and governance (ESG) scores and offer a reduced carbon emissions intensity of 30%.

BlackRock steps up ESG drive with six new low-carbon funds

BlackRock predicts the European ETF market for ESG assets to grow from $12bn today to $250bn by 2028

In a bid to make sustainable investing “mainstream”, BlackRock has launched six new ETFs – investment funds traded on stock exchanges – that will offer publicly disclosed data on the environmental and social implications for assets held within each fund.

Launched across the European market, the ETFs are designed to alleviate concerns of greenwash in the sector by compiling data from BlackRock’s research index provider, MSCI, to disclosure high-quality ESG data. Specifically, the ETFs provide an average ESG quality score and an assessment of the carbon intensity of its underlying portfolio.

BlackRock’s vice chairman Philipp Hildebrand said: “Europe is at the forefront of the sustainable investment movement. Across the region, sustainable investing is believed to be the future of investing and many European clients are pursuing the twin goals of addressing the world’s societal and environmental needs while also generating long term risk-adjusted returns needed to fulfil their financial goals.”

BlackRock predicts the European ETF market for ESG assets to grow from $12bn today to $250bn by 2028, representing 60% of the estimated $400bn global market for the funds.

The six funds are tracked across MSCI indices that examine security criteria to maximise ESG scores. The ETFs screen out companies with exposure to controversial and nuclear weapons, civilian firearms, tobacco, thermal coal and oil sands and those violating UN Global Compact principles.

The funds also use MSCI’s methodology to offer a lower emissions intensity. MSCI can rank companies on stock exchanges based on their carbon footprint. MSCI then excludes the top 20% by emissions intensity from the Index. According to MSCI, the “cumulative weight of securities excluded from any sector is 30% less” as a result.

BlackRock hopes that the disclosure will help investors make funding decisions, with many in the sector concerned that green bonds and finance offerings could be creating a new form of greenwash. In fact, WWF has called for “vigorous” industry standards to be created in the sector to avoid confusion.

BlackRock’s greener pastures

BlackRock is leading the charge for better ESG information for investors. In 2018, more than $1.4bn from European investors were added to the firm’s iShares sustainability ETF platform, which provides exposure and risk assessments across assets and markets. According to BlackRock, this figure is the highest annual net flows on record.

A report from the firm has highlighted the economic benefits of targeting ESG investments. The report charted the progress made in 2018 by financial products with ESG against those which did not. In the US, annual return for ESG-focused equity benchmarks was 14.5%, compared with 14.4% for those without any ESG credentials. The difference across the rest of the world, meanwhile, stood at 8.1% vs 7.7%.

Elsewhere, a study from Greenwich Associates found that half of European institutional investors expect to have more than 50% of their assets linked by ESG criteria by 2024.

Spearheaded by chief executive Larry Fink and his annual calls for the business community to focus on climate mitigation, BlackRock has warned that high-level directors could be voted out of companies that are failing to act on climate risks posed to individual firms.

BlackRock’s new launch comes as new research from impact investment platform Ethex and Energise Africa has found that the more people are looking at ESG performance as a key indicator when buying financial services.

The survey of 2,000 people found that 60% consider ethical and environmental impacts when shopping for financial services. However, just 17% of respondents said they currently hold ethical investments.

In contrast, the percentage of respondents that consider ESG across other purchases is much higher, with 75% impacted by ethics for clothes purchases and 76% when buying energy contracts.

Matt Mace

Action inspires action. Stay ahead of the curve with sustainability and energy newsletters from edie