After consenting to stiffer regulations for governing its six existing funds that have a combined $9 billion in assets, the global asset manager BlackRock announced on Tuesday that it has formed the largest variety of climate-aligned exchange-traded equity funds (EFT).
Norms of the European Union’s Climate Transition Benchmark, which aims to keep global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit) over pre-industrial levels, will be followed by the MSCI indexes that underpin BlackRock’s iShares ESG Enhanced UCITS ETF portfolio, after holding negotiations with BlackRock.
A 30 per cent reduction in carbon intensity is mandated by the CTB in which carbon intensity is a measure of emissions to revenue – when compared to the MSCI benchmark, as well as a 7 per cent year-over-year decarbonization of the benchmark.
This will include for the first time Scope 3 emissions, which encompasses emissions caused by the use of a company’s products rather than those caused by the company itself.
In addition to the CTB, BlackRock stated that when determining what to include in the ETFs, stricter environmental controls would be used. It will expand the scope of an oil sands exclusion to encompass a wider range of unconventional oil and gas activities.
Oil sands, shale gas, shale oil, coal-seam gas, coal-bed methane, and Arctic onshore/offshore reserves shall be excluded from the funds if they generate 5% or more of their earnings.
Companies that have faced severe or very severe controversies relating to environmental issues, such as land use and biodiversity, toxic spills, and water management, will be subjected to an “environmental harm” screen starting in November 2022, according to the statement.
The Enhanced funds will aim to achieve the same goal at the portfolio level as BlackRock’s iShares MSCI World Paris-Aligned Climate UCITS ETF fund range, which drills down into each constituent stock to ensure it is aligned with the goals of the Paris Agreement on climate change.
As a result, each fund has more than double the number of equities eligible for inclusion than the Paris-Aligned funds, with 1,385 against 685.
This gives the funds the opportunity to have a risk-return profile that is considerably closer to the parent index, making them potentially more appealing to wealth managers looking to invest more sustainably but concerned about deviating from the parent’s returns.
(Adapted from Lastly.com)