Industry Updates

BlackRock ESG ETFs tighten fossil fuel screens following MSCI index changes

Companies whose MSCI ESG controversies score is excluded will also be excluded

Theo Andrew

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BlackRock has seen the oil and gas filters tighten on its six-strong ESG screened ETF range following an update by index provider MSCI.

The iShares MSCI ESG Screened UCITS ETF range – which houses roughly £7bn assets under management – will expand its fossil fuel screens to include broader “unconventional” oil and gas extraction as well as introduce new controversy score measures.

Previously, the index methodology would exclude companies deriving more than 5% of their revenue from the mining of thermal coal – via sales or power generation – and oil sands extraction.

Following the changes, companies that generate revenue from unconventional oil and gas extraction defined as; oil sands, oil shale, shale gas, shale oil, coal seam and coal bed methane will also be excluded.

The index provider added that it would be increasing the measures for which a company can be excluded based on its MSCI ESG controversies score.

Companies that have a missing ESG controversies score, those not assessed by MSCI ESG research, will also be excluded from the range.

This is in addition to previous measures that would have seen companies excluded for recording a score of zero or those failing to comply with United Nations Global Compact Principles.

BlackRock said the changes, which came into effect in August, had a “minimal impact” on the companies included within the index.

The largest ETFs to be impacted by the changes are the £3.5bn iShares MSCI USA ESG Screened UCITS ETF (SDUS), the £1.4bn iShares MSCI EM IMI ESG Screened UCITS ETF (SAEM) and the £1.4bn iShares MSCI Europe ESG Screened UCITS ETF (SAEU).

All six ETFs are classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).

Last year, BlackRock partnered with MSCI to incorporate the European Union's Climate Transition Benchmark, aligned to the Paris Agreement's 1.5°C trajectory.

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