Industry Updates

BlackRock to switch two €1.4bn corporate bond ETFs to ESG indices

Increasing demand for ESG characteristics, BlackRock says

Theo Andrew

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BlackRock is proposing to switch the index on two corporate bond ETFs to indices that track ESG metrics as demand for sustainable investing continues to rise.

In a recent shareholder notice, BlackRock said it is proposing to change the index on the €1.4bn iShares € Corp Bond ex-Financials 1-5yr UCUTS ETF (EUNS) and the €1.4bn iShares € Corp Bond ex-Financials UCITS ETF (EEXF).

Following the switch, EEXF will go from tracking the Bloomberg Barclays Euro Corporate ex-Financials Bond index to the Bloomberg MSCI Euro Corporate ex Financials Sustainable SRI index while EUNS will start tracking the Bloomberg MSCI Euro Corporate ex Financials 1-5 Year Sustainable SRI index.

As a result, both ETFs will have ESG added to their name while the total expense ratios (TERs) will remain at 0.20%, respectively.

In a shareholder note, BlackRock said: “We have seen increased investor demand for evolving the existing sub-fund to adopt ESG characteristics whilst maintaining its broad market exposure.

“We believe that where enhancements can be made to improve the ESG characteristics of a portfolio while continuing to provide a similar or improved risk-return profile, such enhancements are in the best interest of investors.”

Both indices follow the methodology of the Bloomberg Euro Aggregate Corporate index with additional ESG criteria.

It will include issuers with MSCI ratings of BBB or higher and will exclude issuers involved in certain business lines including alcohol, tobacco, gambling, adult entertainment, genetically modified organisms, nuclear power, civilian firearms, conventional, nuclear and controversial weapons, thermal coal and fossil fuels.

Issuers with a ‘red’ MSCI controversy score will also be removed from the indices.

EEFX will go from tracking 1998 securities to 1313 as a result while the number of securities tracked by EUNS will reduce from 972 to 627.

Shareholders of EEXF and EUNS have been asked to vote on the changes in an extraordinary general meeting on 25 March, with changes set to take place on 19 April.

It follows a long line of ESG switches from Europe’s largest issuer over the past six months including its €1.8bn iShares € Aggregate Bond UCITS ETF (SEAG).

However, last month, BlackRock failed to get the required level of shareholder approval to add two reduced carbon and ESG screens to the $46.7m iShares MSCI World Consumer Staples Sector UCITS ETF (WCSS) and the $22.7m iShares MSCI World Consumer Discretionary Sector UCITS ETF (WCDS).

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