BlackRock has launched a range of UK-domiciled sustainable iShares index mutual funds to address the gap in the UK Wealth Market for strategies that help clients make a sustainable transition with indexing.
The range comprises of five funds[1] covering regional and country-specific equity exposures which maximize ESG characteristics, reduce carbon emissions intensity by at least 30% whilst remaining close to the parent benchmark[2].
The UK is entering a period of accelerated growth for indexing across wealth portfolios. BlackRock expects current levels of 10-20% within the portfolios of financial advisors, traditional and digital wealth managers and private banks to double over the next three years[3]. Index mutual funds continue to play an important role in this market, reflecting strong client interest for strategies that allow them to build low-cost, efficient portfolios and gain exposures to desired investment outcomes.
This growth is driven by the centralisation of investment decisions by UK wealth manager head offices adopting discretionary portfolio management for a greater proportion of client assets. Alongside this trend, there is widespread and growing appetite from investors to embed sustainability into their asset allocation decisions.
Manuela Sperandeo, BlackRock’s EMEA Head of Sustainable Indexing, said: “We are excited to launch this new range of funds which set the standard for sustainable index investing in the UK market. Investors across the country, including pension funds, wealth managers and private banks, are turning to solutions that enable them to incorporate ESG considerations into their standard portfolios. These new sustainable, core index building blocks allow investors to build low-cost, global equity portfolios with the flexibility to adjust exposures according to their asset allocation needs.”
For the first time, BlackRock has worked with Morningstar Indexes, one of the fastest growing global index providers, to design a set of ESG equity indexes covering global, regional and country-specific exposures. Each index has been designed to maintain a target tracking error, assigned for each geography, which reflects UK investor preferences to closely match the performance of the parent broad market indexes.
The Morningstar ESG Enhanced Index methodology applies a set of ten exclusionary screens to limit each fund’s exposure to controversial activities. In addition to BlackRock’s baseline screens[4], a set of screens specific to the UK market has been incorporated that relate to Alcohol, Gambling and Adult Entertainment. Lastly, companies with a severe controversy score, as defined by Sustainalytics, the ESG data provider which is also part of Morningstar, are excluded as well as those with a missing ESG risk rating or controversy score.
The securities are then re-weighted with the goal of optimising for ESG characteristics while maintaining the risk profile of the parent universe. Moreover, the indices have an explicit decarbonisation target, to respond to the increasing demand from UK investors for climate aware investment products.
Rob Edwards, Director of Product Management, EMEA & ESG, Morningstar Indexes, said: “We are thrilled to build on our global collaboration with BlackRock to offer differentiated index-based strategies to help European investors address their growing sustainable investment needs. Our suite of ESG indexes draw on the capabilities of Morningstar Indexes global research team in addition to the underlying ESG ratings of highly respected ESG ratings provider Sustainalytics, also part of Morningstar. In combination with the strength of BlackRock, our indexes represent compelling value for the end investor.”
About the iShares ESG Enhanced Equity UK Index Fund Range:
| Fund name | Benchmark | OCF |
| iShares Continental European Equity ESG Enhanced Index Fund (UK) | Morningstar® Developed Europe ex-UK ESG Enhanced Index | 0.06% |
| iShares UK Equity ESG Enhanced Index Fund (UK) | Morningstar® UK ESG Enhanced Index | 0.05% |
| iShares Japan Equity ESG Enhanced Index Fund (UK) | Morningstar® Japan ESG Enhanced Index | 0.09% |
| iShares US Equity ESG Enhanced Index Fund (UK) | Morningstar® US Markets ESG Enhanced Index | 0.05% |
| iShares Pacific ex Japan Equity ESG Enhanced Index Fund (UK) | Morningstar® Developed Markets Asia Pacific ex-Japan ESG Enhanced Index | 0.12% |
| iShares Emerging Markets Equity ESG Enhanced Index Fund (UK) | Morningstar® Emerging Markets ESG Enhanced Index | 0.19% |
Globally, BlackRock has built one of the largest sustainable investment platforms in the industry for investors, including the widest range of sustainable ETFs and index products, to meet the needs of our clients wherever they are in their sustainable journey. BlackRock’s sustainable ETF and index fund assets under management have grown to USD 246 billion, more than double the 2020 total5.
[1] A sixth fund offering investors exposure to emerging markets will be launched in the coming weeks
[2] For an optimised global equity portfolio using ESG enhanced range vs market cap FTSE global equity portfolio. Calculations using Sustainalytics ESG metrics. Source: BlackRock, Aladdin as at 31 December 2021
[3] Analysis conducted by BlackRock, April 2021
[4] BlackRock’s base-line screens avoid exposure to certain companies or sectors associated with controversial and nuclear weapons, civilian firearms, tobacco, thermal coal, oil sands and companies that are not compliant with the United Nations Global Compact principles.
5 BlackRock, as of Dec. 31, 2021
