On Tuesday, BlackRock released its annual letter to shareholders, as well as CEO Larry Fink's annual letter to CEOs, and with them, raised the bar for environmental, social and governance (ESG) investing.
The letters, which sound dire warnings about the existential threat climate change poses, establish immediate, concrete commitments that BlackRock is making toward more sustainable investing and product offerings.
Many of the announced changes go into effect in the next few months.
‘Significant Reallocation Of Capital’
In its client letter, BlackRock identified two key risks from climate change: the "physical risk" associated with environmental changes, such as rising temperatures and sea levels; and "transition risk" associated with society moving to a low-carbon economy.
This transition may not be cheap or easy for companies, and it could and likely will cut into their bottom lines. But it will happen regardless, says Fink, because it must: "In the near future—and sooner than most anticipate—there will be a significant reallocation of capital."
"I believe we are on the edge of a fundamental reshaping of finance," he added.
Doubling ESG Lineup
Among the changes announced, BlackRock intends to double its current lineup of ESG ETFs, up to a projected 150 products worldwide.
Many of these new ETFs will be sustainable versions of its flagship index products, though which indexes or products were not specified in the announcements.
Currently, iShares offers 14 ESG ETFs in the U.S., totaling over $10.4 billion in assets under management, or more than half of all assets invested in ESG ETFs:
|BlackRock's ESG ETF Suite|
|SUSB||iShares ESG 1-5 Year USD Corporate Bond ETF||$193||0.12%|
|ESGD||iShares ESG MSCI EAFE ETF||$1,490||0.20%|
|ESGE||iShares ESG MSCI EM ETF||$890||0.25%|
|ESGU||iShares ESG MSCI U.S.A. ETF||$1,500||0.15%|
|ESML||iShares ESG MSCI U.S.A. Small-Cap ETF||$113||0.17%|
|SUSL||iShares ESG MSCI USA Leaders ETF||$1,860||0.10%|
|EAGG||iShares ESG U.S. Aggregate Bond ETF||$177||0.10%|
|SUSC||iShares ESG USD Corporate Bond ETF||$91||0.18%|
|ICLN||iShares Global Clean Energy ETF||$450||0.46%|
|BGRN||iShares Global Green Bond ETF||$43||0.20%|
|CRBN||iShares MSCI ACWI Low Carbon Target ETF||$497||0.20%|
|SDG||iShares MSCI Global Impact ETF||$75||0.49%|
|DSI||iShares MSCI KLD 400 Social ETF||$1,870||0.25%|
|SUSA||iShares MSCI USA ESG Select ETF||$1,210||0.25%|
iShares offers many more products overseas, including 67 sustainable ETFs in Europe, 10 in Singapore and seven in Canada.
Recognizing the fact that different investors approach ESG investing in different ways, BlackRock's client letter outlined a three-pronged approach toward future launches.
Some ETFs will focus on screening out specific sectors or companies that investors find objectionable—so-called "exclusionary screened" ETFs that historically had dominated ESG product offerings.
Other ETFs will provide exposure to high-ESG-ranked companies while simultaneously attempting to match the performance of traditional market-cap-weighted benchmarks. This product category has found particular success recently with the launch of funds like the $1.86 billion iShares ESG MSCI USA Leaders ETF (SUSL).