BlackRock to incorporate CTB into iShares ESG ETF range
BlackRock has announced that following MSCI’s Semi-Annual Index Review, and effective from 1st December 2021, the iShares ESG Enhanced UCITS ETF range will receive upgrades to its benchmarks, the MSCI ESG Enhanced Focus Indices, to meet the EU’s Climate Transition Benchmark (CTB) requirement as well as introduce more stringent exclusions, including conventional weapons.
BlackRock writes that the CTB is an internationally recognised benchmark introduced by the European Union in April 2020, following a consultation with market participants. The benchmark is aligned to a 1.5ºc warming trajectory and requires a 30 per cent carbon intensity reduction versus the parent index and a 7 per cent year-on-year decarbonisation of the benchmark itself. The carbon intensity requirements incorporate Scope 3 carbon emissions for the first time. The new business screens include conventional weapons and from the end of November 2022 the introduction of an environmental harm screen. There is also an upgrade of the current oil sands screen to an unconventional oil and gas screen.
As a result of these benchmark changes, all six funds within the range will have their SFDR classification changed to Article 9 on the 1st December 2021. In addition, the range will also comply with the requirements of a new industry standard by the BVI, the German Investment Funds Association, for ESG products available for distribution in Germany.
Manuela Sperandeo, BlackRock’s EMEA Head of Sustainable Indexing says: “Investors can help support a successful response to climate change through their portfolio choices. These improvements to the iShares ESG Enhanced UCITS ETF range raise the standard for incorporating environmental characteristics into sustainable ETFs. For the first time, ESG and climate considerations, in line with EU regulation, are united into a range of ETFs offering a choice of exposures covering global equities.
“Our focus continues to be on aligning ESG ETFs with emerging standards in sustainable investing and offering clients more choice when seeking to implement their sustainability goals.”
The iShares ESG Enhanced UCITS ETF range is priced at the same low TER as non-ESG products and the upgrades to the index methodology have been designed to maintain tracking error targets of 75bps versus the parent index for developed market exposures (and 100bps for emerging market exposures). These key features enable investors to convert from traditional to sustainable investments through building sustainable portfolios with core regional ETF building blocks at low cost without compromising performance or target tracking error budgets.