'Ex-Fossil Fuels' ETFs
Still other ETFs will attempt to optimize for both ESG ratings and implement stringent exclusionary screens, including one for fossil fuel companies. Though ex-fossil fuel ETFs from State Street and others already exist, BlackRock has yet to launch any of its own products on this theme.
Also, the firm plans to launch sustainable versions of its target-date mutual funds and its all-in-one asset allocation ETFs, which include the iShares Core Growth Allocation ETF (AOR) and the iShares Core Moderate Allocation ETF (AOM). These funds are ETFs' closest equivalent to target-date funds, which are huge in the mutual fund space. (Read: "An Unlikely ETF Revival.")
Divesting From Coal
But BlackRock's plans extend far beyond a few product launches. The company also has pledged to integrate ESG into every step of its investment process, from working with index providers to create more sustainable benchmarks, to offering ESG-optimized model fund portfolios and risk management tools.
Furthermore, BlackRock will divest the entirety of its $1.8 trillion of actively invested assets from thermal coal producers, as well as apply pressure on the companies still using thermal coal to transition to another power source.
For context, BlackRock is a top-10 stakeholder of several major coal companies, holding 5% of outstanding shares of Peabody Energy Corporation (BTU); 8% of Arch Coal Inc (ARCH); and 14% of Warrior Met Coal (HCC).
Maybe It Really Is Different This Time
In its letter to clients, BlackRock was careful to caution that use of and investment in fossil fuels is a practical necessity that will persist for the foreseeable future: "Investment exposure to the global economy will mean exposure to hydrocarbons for some time. While the low-carbon transition is well underway, the technological and economic realities mean that the transition will take decades."
Still, something about the frankness and immediacy of BlackRock's 2020 letters feels different than its past promises for greater commitment to social action. The firm appears to be approaching sustainability less as a thematic opportunity now, and more as table stakes for the pragmatic investor.
We might look back on Jan. 14 as the day everything changed. Or we might not. It all depends on BlackRock's follow-through. I've already spoken to one advisor who remains skeptical of the news, arguing that, to really believe BlackRock has had a change of heart, he'd need to see the firm start voting in line with its promises.
Even still, I'm excited by this announcement. BlackRock isn't the first asset manager to pledge itself to greater sustainability, but it is by far the largest—and perhaps the momentum generated will help pull the rest of the industry along, too.
Contact Lara Crigger at [email protected]