BlackRock Halves Controversial-Company Ejection Time on $71B of ESG ETFs

The 'fast-exit' rule will now see violator companies excluded in 45 days rather than the previous 90.

Reviewed by: Jamie Gordon
Edited by: Jamie Gordon

LONDON − Controversial companies and UN Global Compact violators will be evicted from several BlackRock ESG ETFs twice as quickly by MSCI after the index provider changed its controversies review from quarterly to monthly.

BlackRock’s ‘fast-exit’ rule was implemented last December and will see violator companies excluded in 45 days rather than the previous 90 days.

The move affects 41 products with $70.5bn assets under management (AUM) across BlackRock’s socially responsible investing (SRI), ESG enhanced, ESG screened, climate, sector and factor ESG ETF ranges, a BlackRock spokesperson told ETF Stream.

This includes $55.5bn tracking MSCI indices custom-built for BlackRock and follows conversations with the firm’s German wealth management clients who called for faster exclusion of controversial actors from ESG ETFs.

MSCI's index methodology said existing constituents will be deleted if they receive an MSCI ESG Controversy score of zero out of nine, marking them as ‘red flag’ companies, or if they do not comply with UN Global Compact principles.

The index provider’s monthly review of controversies relies on data from the previous month. Some data may not be published by the end of the previous calendar month, explaining why violators are removed from corresponding ETFs every 45 days rather than monthly.

The recent changes come after MSCI tightened the sustainable metrics on indices tracked by BlackRock’s $15bn ESG screened ETF range last March.

The updated metrics include a carbon intensity reduction of 30% versus parent indices and exclusions for companies generating at least 5% of revenues from palm oil, oil and gas or those with an MSCI ESG Controversy score of one based on land use and biodiversity and supply chain management.

Jamie started at ETF Stream as a reporter in January 2021. Previously, he was a senior journalist at the UK Investor Magazine, Investment Observer, UK Startup Magazine and UK Property Journal. He holds an undergraduate degree in politics and international relations, and a postgraduate degree in ethics.