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BlackRock bets on ‘dramatic’ sustainable ETF growth

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BlackRock has launched a suite of “sustainable” exchange-traded funds (ETFs) that track new MSCI indices that exclude companies on up to six different grounds. 

The asset manager said it expected assets under management in ESG ETFs would rise “dramatically” in the next 10 years as a result of increased interest from retail investors as well as continued strong demand from institutions.

Assets in ESG-related ETFs could grow 16-fold over that period, BlackRock said, from $25bn (€22bn) today to more than $400bn (€349bn) by 2028. According to the manager, this would increase the ETF industry’s share of the ESG investment market from 3% today to 21%.

BlackRock partnered with MSCI to design and build the new screened indices following a survey of 80 clients across Europe at the beginning of the year.

According to MSCI, the new indices aimed to exclude companies associated with thermal coal and oil sands extraction, as well as those deriving revenues from controversial and nuclear weapons, civilian firearms, and tobacco. Companies violating the principles of the UN Global Compact would also be excluded.

The index provider said it was its first off-the-shelf methodology to incorporate a range of ESG exclusions in broad market capitalisation indices.

Deborah Yang, global head of ESG indices at MSCI, said the company had observed growing interest among institutional and wealth investors for benchmarks with ESG exclusions “that are easy to use and implement”.

Making exclusions with a market capitalisation approach had been possible for many years, according to Yang.

BlackRock said it would make “transparent” environmental, social and corporate governance (ESG) data available on its iShares website, as “part of a firm-wide initiative to expand access to ESG data and sustainability-related insights for clients and across our investment processes globally”.

The company said it would also launch strategic ESG model portfolios for financial advisers and independent asset managers, implemented through UCITS iShares ETFs.

The $6.4trn manager said its new offering was targeting “the growing number of investors seeking to align their values with their long-term financial objectives”.

Philipp Hildebrand, vice-chairman of BlackRock, added that “increased transparency on the sustainability profile of their investment portfolios will enable investors to understand the potential ESG-related risks and opportunities they are exposed to”.

BlackRock’s disclaimers for the new ETFs state that, apart from for controversial weapons, “no exclusion is made on the basis of how ethical a particular industry/sector is perceived to be” and that investors should therefore make a personal ethical assessment of the index before investing in one of the new funds.  

See IPE’s 2018 ETF Guide for more on ESG and ETFs

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