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MSCI tightens metrics on BlackRock’s $15bn ESG screened ETF range

The ETF will target a 30% reduction in carbon emissions relevant to the parent index

Theo Andrew

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BlackRock’s $15bn ESG screened ETF range will see its sustainable metrics tightened following changes made by MSCI to the underlying indices.

According to the world’s largest asset manager, MSCI will make several changes to the index range from 1 March following a consultation with the market as it looks to strengthen the suite’s ESG credentials in order to reflect regulatory developments in Europe. 

The changes include a carbon intensity reduction of 30% compared to the parent index. The indices will also exclude companies that generate 5% of their revenue from the production or distribution of palm oil or extraction of arctic oil and gas.

Furthermore, companies that have an MSCI ESG controversy score of one for two pillars of its methodology, land use and biodiversity and supply chain management will also be excluded.

The six ETFs impacted are:

Following the consultation, MSCI said: "Market participants generally recognised the need for the MSCI ESG Screened indices to evolve in order to reflect regulatory developments, such as the Sustainable Finance Disclosure Regulation (SFDR), the Markets in Financial Instruments Directive II (MiFID II) sustainability preferences, and different regulations related to the naming / labelling of indexes and financial products.

The index provider said it was "not the time" to add a minimum proportion of sustainable investment requirements to the index due to the "prevailing market uncertainty over how to assess if a company may be a sustainable investment" under Article 2 of SFDR. 

"Remediation of any potential sustainable investment shortfall versus a minimum could reduce index coverage, increase tracking error, increase rebalance turnover and/or require a change in the current market capitalization weighting scheme," MSCI added. 

The ETF range is labelled Article 8 under SFDR.

BlackRock is the latest to see its underlying indices changes for its ESG ETFs. Invesco also announced a series of changes after its provider Solactive adjusted its methodology in a bid to comply with SFDR.

Following the changes, companies missing data on global standard screening, controversy score, ESG risk ratings and various product involvement fields will be ineligible for index selection.

BlackRock triggered a wave of SFDR reclassifications last November after ETF Stream revealed it would be downgrading its entire Article 9 Paris-Aligned Benchmark and Climate Transition Benchmark ETF range to Article 8.

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