Differences Among iShares’ ESG ETFs

November 15, 2021

Not all ESG ETFs are created equal, even when they’re coming from the world’s largest ETF issuer.

As of mid-November, BlackRock has 30 ETFs listed in the U.S. under several different “sustainability” categories. Let’s dive in to see how iShares has grouped these ETFs together for investors seeking various levels of ESG-type exposure.

 

Screened S&P

These three ETFs follow broad equity indices from Standard & Poor’s altered to remove any company involved in fossil fuel production, or the production or sale of tobacco and firearms.

The index providers also use business intelligence services to monitor if companies held by the funds commit some type of crime or controversy, and can remove a violating company at the next quarterly reconstitution event.

Companies that are kicked out of these ETFs’ indexes are banned from returning for a full year.

 

Ticker Fund Expense Ratio Net Assets ($M) Asset Class MSCI ESG Rating MSCI Weighted Carbon Intensity*
XVV iShares ESG Screened S&P 500 ETF 0.08 286.62 Equity A 82.46
XJH iShares ESG Screened S&P Mid-Cap ETF 0.12 63.51 Equity A 117.85
XJR iShares ESG Screened S&P Small-Cap ETF 0.12 19.07 Equity BBB 83.85

*Tons of CO2 emitted by constituents/$M in sales

 

This generally produces a more concentrated version of the parent index. XVV holds 450 companies and has 32.31% of its weight in its top 10 holdings, compared with 505 holdings and 29.48% weighting of the top 10 in the iShares Core S&P 500 ETF (IVV) .

However, both funds have the same top 10 holdings, with Johnson & Johnson being the largest removed company from XVV.

ESG Aware

The ESG Aware line is geared to investors who want to strike a balance between more sustainable investments without diverging too far from the performance of the broad markets.

These funds maintain the screen against companies generating more than $20 million or 5% of their revenues from fossil fuels, weapons and tobacco manufacturing, along with firms deemed by MSCI to be involved in severe business controversies.

The remaining equities and bonds are then measured by a quantitative process to strike a balance between a higher ESG score and maintaining similar risk and return profiles to the parent index.

MSCI also attempts to measure the management behind the companies issuing stocks or debt to determine which companies are in a better position to handle changes to the climate and social environment against their industry.

 

Ticker Fund Expense Ratio Net Assets ($M) Asset Class MSCI ESG Rating MSCI Weighted Carbon Intensity*
ESGU iShares ESG Aware MSCI USA ETF 0.15 24288.01 Equity A 95.46
ESGD iShares ESG Aware MSCI EAFE ETF 0.20 7403.11 Equity AAA 97.80
ESGE iShares ESG Aware MSCI EM ETF 0.25 6895.13 Equity AA 187.36
EAGG iShares ESG Aware U.S. Aggregate Bond ETF 0.10 1674.14 Fixed Income A 151.49
ESML iShares ESG Aware MSCI USA Small-Cap ETF 0.17 1303.46 Equity A 105.46
SUSB iShares ESG Aware 1-5 Year USD Corporate Bond ETF 0.12 1065.47 Fixed Income AAA 144.10
SUSC iShares ESG Aware USD Corporate Bond ETF 0.18 876.40 Fixed Income AA 160.68

*Tons of CO2 emitted by constituents/$M in sales

 

These tend to be the closest ETFs to their parent indexes in the iShares lineup, but the screening process still removes plenty of companies. For example, ESGU has 330 constituents compared with the 625 in the parent MSCI USA Index.

Weightings are also a major factor in the order of the largest holdings. UnitedHealth Group is the 10th largest holding in the parent index, with a 1.04% weight, but is 13th and a weight of 0.82% in ESGU.

Also flying under the ESG Aware banner are the ESG Aware asset allocation funds. These four are ETFs-of-ETFs strategies that hold a mix of the pure-play ESG Aware-branded ETFs listed above, but with different mixes of equity and fixed income exposures based on the investor’s risk tolerance.

These range from the 30/70 mix between equity and bonds on the most conservative version to an 80/20 split in the aggressive-tilted version.

 

Ticker Fund Expense Ratio Net Assets ($M) Asset Class MSCI ESG Rating MSCI Weighted Carbon Intensity*
EAOK iShares ESG Aware Conservative Allocation ETF 0.18 45.17 Multi Asset AA 126.86
EAOA iShares ESG Aware Aggressive Allocation ETF 0.18 22.66 Multi Asset AA 110.62
EAOR iShares ESG Aware Growth Allocation ETF 0.18 9.63 Multi Asset AA 115.38
EAOM iShares ESG Aware Moderate Allocation ETF 0.18 5.90 Multi Asset AA 122.20

*Tons of CO2 emitted by constituents/$M in sales

 

ESG Advanced

The second broad ESG category, the iShares ESG Advanced lineup, features ETFs that lean toward broad market exposures, but with a beefier set of exclusions.

These funds cull companies involved in adult entertainment, alcohol, gambling, tobacco, genetic engineering, weapons development, palm oil, private prisons, payday lending and nuclear power. Some of those categories are revenue-exclusionary, while other categories such as companies tied to fossil fuels production are eliminated entirely.

Then, any companies given a score lower than BBB on MSCI’s seven-segment ESG scale are removed from the index. BBB is in the middle of that scale, and 37% of companies covered by the index provider fall below that threshold.

MSCI also retains the ability to disqualify a company based on the occurrence of a “very serious” business controversy.

 

Ticker Fund Expense Ratio Net Assets ($M) Asset Class MSCI ESG Rating MSCI Weighted Carbon Intensity*
EUSB iShares ESG Advanced Total USD Bond Market ETF 0.12 581.88 Fixed Income AA 61.04
USXF iShares ESG Advanced MSCI USA ETF 0.10 523.59 Equity AAA 72.55
DMXF iShares ESG Advanced MSCI EAFE ETF 0.12 276.26 Equity AAA 71.27
HYXF iShares ESG Advanced High Yield Corporate Bond ETF 0.35 125.00 Fixed Income A 118.59
EMXF iShares ESG Advanced MSCI EM ETF 0.16 22.25 Equity AA 130.04

*Tons of CO2 emitted by constituents/$M in sales

 

ESG Leaders

These two funds are derived from indexes that select the highest-ranked company as determined by MSCI’s ESG ratings, adjusting for size and sector membership. These ETFs aim to cover half of each sector’s overall market capitalization and retain the industry screens from the ESG Aware lineup.

 

Ticker Fund Expense Ratio Net Assets ($M) Asset Class MSCI ESG Rating MSCI Weighted Carbon Intensity*
SUSL iShares ESG MSCI USA Leaders ETF 0.10 4334.98 Equity AA 62.92
LDEM iShares ESG MSCI EM Leaders ETF 0.16 870.72 Equity A 228.84

*Tons of CO2 emitted by constituents/$M in sales

 

SUSL goes farther than ESGU in cutting down its parent index by a wide margin, with 269 holdings and a 36.5% concentration in the top 10 versus 330 holdings and 27.86% in the top 10, respectively.

Several major names are also omitted from the top holdings. Apple, Amazon, Facebook and J.P. Morgan are not in SUSL, but they make up 12.5% of ESGU.

ESG Thematic

This following group of six ETFs varies widely in their exclusions and goals in pursuit of targeted exposure to certain subsections of the pivot to a zero-carbon economy, and include the only three actively managed ETFs in the iShares ESG lineup.

Each carries a slightly different approach to its portfolio and the research it relies upon to measure its ESG impacts, and there is not one set of unified rules under this banner. As with any ETF, investors should read the prospectuses to get a sense of how each of these funds operate.

 

Ticker Fund Expense Ratio Net Assets ($M) Asset Class MSCI ESG Rating MSCI Weighted Carbon Intensity*
ICLN iShares Global Clean Energy ETF 0.42 6782.79 Equity AAA 731.17
LCTU BlackRock U.S. Carbon Transition Readiness ETF 0.15 1517.03 Equity A 67.89
CRBN iShares MSCI ACWI Low Carbon Target ETF 0.20 1352.13 Equity A 64.19
LCTD BlackRock World ex U.S. Carbon Transition Readiness ETF 0.20 602.30 Equity AAA 115.56
SDG iShares MSCI Global Impact ETF 0.49 561.28 Equity AA 210.07
BECO BlackRock Future Climate and Sustainable Economy ETF 0.70 5.21 Equity - -

*Tons of CO2 emitted by constituents/$M in sales

 

Green Bond Fund

Listed under the “Impact” banner, the iShares Global Green Bond ETF (BGRN) holds investment-grade debt issued for a specific environmental purpose.

iShares then tracks the environmental benefits derived from those projects over time.

More To Come

In his 2020 letter to investors, BlackRock CEO Larry Fink said the firm would add ESG-tinted versions of core offerings over the coming years.

In early November, the company launched the iShares ESG MSCI USA Min Vol Factor ETF (ESMV) and the iShares ESG Advanced Investment Grade Corporate Bond ETF (ELQD), which are screened versions of iShares’ minimum-volatility and corporate bond strategies, respectively.

Contact Dan Mika at [email protected], and follow him on Twitter

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