Strong Flows Into iShares ESG Bond ETFs

Environmental, social and governance (ESG) ETFs have grown rapidly so far in 2020, but fixed income remains a relatively small niche, with only $1.6 billion in assets invested across 15 products. However, that may be set to change.

In the past two weeks, flows into one iShares ESG bond ETF have spiked dramatically. Since June 29, the iShares ESG Aware USD Corporate Bond ETF (SUSC) has seen an influx of $153 million—a 79% rise in its assets under management.

In particular, a $37 million influx on July 7 was SUSC's highest one-day inflow ever:

Source: ETF.com; data as of July 10, 2020

Over the past three months, SUSC has brought in $221 million—a substantial sum for a fund that lingered well under $100 million in assets until earlier this year.

Other iShares ESG bond ETFs have seen strong, if choppier, inflows over the same time frame, too. For example, the iShares ESG Aware U.S. Aggregate Bond ETF (EAGG) has brought in $95 million in new net assets over the past three months, while the iShares ESG Aware 1-5 Year USD Corporate Bond ETF (SUSB) has brought in $60 million.

'ESG Advanced' ETFs Go Deeper

All three funds carry the iShares “ESG Aware” branding, an umbrella of ESG funds carrying milder exclusionary screens than the issuer’s new “ESG Advanced” lineup, which rolled out three weeks ago with the launch of the iShares ESG Advanced MSCI USA ETF (USXF) and the iShares ESG Advanced MSCI EAFE ETF (DMXF). (Read: "iShares Broadens Sustainable ETF Offering.")

So far, there is one “ESG Advanced” bond ETF: the iShares ESG Advanced Total USD Bond Market ETF (EUSB).

Like USXF and DMXF, EUSB is designed to satisfy investors looking for a stronger stance on ESG issues. In addition to the usual ESG exclusionary screens of adult entertainment, alcohol and gambling, EUSB screens out issues from companies involved in private prisons, palm oil, civilian firearms and predatory lending, based on either revenue thresholds or category.

The “ESG Advanced” funds also screen out issues from all fossil fuel companies, based on revenues, ownership of fossil fuel reserves and power generation. (Read: "Dirtiest & Cleanest ESG ETFs.")

Another ESG Advanced bond ETF is on the way. Sometime between September and December, BlackRock will convert the existing $45 million iShares iBoxx USD High Yield ex Oil & Gas Corporate Bond ETF (HYXE) to the iShares ESG Advanced High Yield Corporate Bond ETF (HYXF), switching its index and ticker.

iShares Bets Big On ESG

The strong flows into SUSC, EAGG and SUSB mirror a massive influx into iShares' equity ESG products, which have commanded the lion's share of cash moving into ESG ETFs year to date.

So far in 2020, the 22 iShares ESG products have accounted for $11.3 billion, or 73%, of the $15.5 billion in new net money invested in ESG ETFs.  

That's on target for the approach outlined in Larry Fink's January letter to shareholders, which described not only the new ESG ETFs that have launched but a plan to integrate ESG into every step of the firm's investment process, from risk management to model fund portfolios. (Read: "BlackRock Raises Stakes For ESG ETFs.")

Contact Lara Crigger at [email protected]