Industry Updates

BlackRock to add EU climate benchmark to $9bn ESG enhanced ETF range

MSCI indices are changing their methodologies

Tom Eckett

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BlackRock has partnered with MSCI to change the methodology of its ESG enhanced ETF range to incorporate the European Union’s Climate Transition Benchmark (CTB).

Effective 1 December, the $9bn six-strong ETF range will track MSCI climate indices that are aligned to the Paris Agreement’s 1.5°C trajectory.

The six ETFs are:

By incorporating the CTB, the ETFs will implement a 30% carbon intensity reduction versus the parent index, a 7% year-on-year decarbonisation target and take into account Scope 3 emissions.

The ETFs will also exclude controversial weapons and will introduce an environmental harm screen from the end of November 2022.

Existing exclusions from the CTB are controversial weapons, nuclear weapons, UN Global Compact violators, tobacco, civilian firearms, thermal coal and oil sands.

The firm added upgrades to the index methodologies are designed to maintain tracking error targets of 0.75% versus the parent index for developed market exposures and 1% for emerging market exposure. The total expense ratios (TERs) will remain the same.

As a result of the changes, the six-strong range will be classified as Article 9 instead of Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).

Furthermore, BlackRock added the ETF range will comply with the requirements of the German Investment Funds Association (BVI) for ESG products available for distribution in Germany.

Manuela Sperandeo (pictured), head of sustainable indexing, EMEA, at BlackRock, commented: “Investors can help support a successful response to climate change through their portfolio choices.

“These improvements to the ESG enhanced ETF range raise the standard for incorporating environmental characteristics into sustainable ETFs.

“Our focus continues to be on aligning ESG ETFs with emerging standards in sustainable investing and offering clients more choice when seeking to implement their sustainability goals.”

Climate change ETFs: A year of dramatic development

Remy Briand, head of ESG and climate at MSCI, added: “Incorporation of the EU CTB in the MSCI ESG Enhanced Focus indices reflects investor demand to drive the transition to a 1.5°C world.

“The outcome of this consultation enables MSCI to continue to provide industry-leading ESG and climate indices, some of which enable investors to incorporate decarbonisation alongside ESG with close-alignment to the MSCI parent index.”

The move means BlackRock has the largest range of climate ETFs linked to the EU’s CTB and Paris Aligned Benchmark (PAB) with over $9bn assets under management (AUM).

The world's largest asset manager already offers a four-strong climate equity ETF range that is linked to the PAB which requires a 50% carbon intensity reduction versus the parent benchmark.

They are:

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