ETF provider iShares is expanding its environmental, social and governance (ESG) ETF line-up and enhancing its existing ESG funds.

iShares says client demand for sustainable investment solutions is growing exponentially, as investors increasingly recognise the impact of climate change and other sustainability risks on their portfolios. The USD5 billion in US iShares ESG ETF flows in 2019 and more than double year-over-year asset growth highlight the growing demand.

“Sustainable investing has reached an inflection point as investors better understand the increasing impact that ESG-related risks have on asset pricing, and account for these risks in their portfolios,” says Armando Senra, Head of Americas iShares at BlackRock. “That has translated into growing demand for iShares sustainable ETFs and the need to offer greater choice to make sustainability our standard for investing.”

iShares plans to debut three fossil fuel screened ETFs under a new ‘Advanced’ product range that seek to track indices with extensive screens, including palm oil, for-profit prisons, controversial weapons, and increased controversy score requirements. These proposed funds will apply the most screens of any iShares ESG ETFs in the US and will offer exposure to US, developed and emerging markets companies.

“Our clients’ growing preference for investing in top ESG companies is quickly driving an evolution in fund design and index construction,” says Carolyn Weinberg, Managing Director and Global Head of Product for iShares. “We are stepping forward with our proposed Advanced range, which will enable investors to aggressively pursue companies with strong ESG scores while also avoiding those with riskier ESG business involvement, including fossil fuel reserves or ties to thermal coal or oil sands.”

iShares is rebranding its Sustainable Core ETFs as ‘Aware’. Aware ETFs seek to track indices that include companies that exhibit favourable ESG characteristics and are then optimised to offer a similar risk and return profile to broad market indices. The Aware range was introduced in October 2018 with seven ESG ETFs across equities and fixed income, designed to offer low-cost building blocks for investors to construct broad, diversified sustainable portfolios.

As a further enhancement to the iShares ESG Aware equity funds, MSCI is implementing, to the indices of these funds, additional screens to exclude companies with thermal coal and oil sands revenue exposure. The new screens will be effective on 2 March.