BlackRock has launched six exchange-traded funds (ETFs) that track major equity markets but screen out companies that do not meet environmental, social and governance (ESG) standards, as demand for funds invested in companies deemed socially responsible or ethical grows.
The six new ETFs track MSCI indices focused on global, Japanese, emerging market, European and US equities, but don't include companies involved in the armaments, tobacco, thermal coal and oil sands extraction industries, or that do not comply with United Nationals Global Compact principles. The MSCI indices weight the companies they do include according to their market capitalisations.
iShares Core ESG range
| ETF | Share class currency | Total expense ratio (%) |
| iShares MSCI World ESG Screened UCITS ETF (SAWD) | Dollar | 0.2 |
| iShares MSCI Japan ESG Screened UCITS ETF (SAJP) | Dollar | 0.2 |
| iShares MSCI Emerging Markets IMI ESG Screened UCITS ETF (SAEM) | Dollar | 0.18 |
| iShares MSCI Europe ESG Screened UCITS ETF (SAEU) | Euro | 0.12 |
| iShares MSCI EMU ESG Screened UCITS ETF (SAUM) | Euro | 0.12 |
| iShares MSCI USA ESG Screened UCITS ETF(SASU) | Dollar | 0.07 |
Source: iShares
The new ETFs are part of BlackRock's iShares Core range of simple lower-priced funds, which have been popular with investors. The iShares Core ESG ETFs also have the same prices as the equivalent Core range ETFs which track broad traditional indices, with charges of between 0.07 and 0.2 per cent. This is in contrast to a number of existing ESG ETFs which are generally more expensive than ETFs that track broad traditional indices.
However, despite being listed on the London Stock Exchange, the iShares ESG-screened ETFs are currently only available in euro and dollar share classes, which means the returns of UK investors in the funds may be affected by currency fluctuations. This is also the case with many of the ESG-screened ETFs offered by DWS, and the funds in both ranges are still fairly small in terms of their assets under management.
Peter Sleep, senior investment manager at Seven Investment Management, added that investors need to ensure the methodology of the MSCI indices the iShares ESG-ETFs track matches what they want.
The iShares Core ESG-ETFs track the MSCI ESG Screened range of indices, which are designed to keep out unwanted stocks but maintain a very similar return profile to the equivalent mainstream indices. So, for example, the performance of the MSCI Europe ESG Screened index should not be too different to that of MSCI Europe index. This is in contrast to some of the existing ESG ETFs, which have underperformed broad traditional indices, making them unpopular with investors.
However, because MSCI's ESG indices aim for returns closer to those of mainstream indices, they take a lighter approach to ESG-screening. For example, MSCI's ESG indices exclude companies involved with oil sands and thermal coal extraction, but include other types of oil companies. So Total (PAR:FA) and BP (BP.) account for nearly 4 per cent of iShares MSCI Europe ESG Screened UCITS ETF's assets because they are large components of MSCI Europe ESG Screened Index.
