In 2020, inflows into sustainable funds increased to $360 billion, up from just $30 billion in 20161—and this trend is showing no signs of slowing. “We’re starting to see an evolution in how investors think about sustainability,” says Sarah Kjellberg, head of U.S. sustainable ETFs at BlackRock. “It’s gone from niche to necessary, and we’re seeing growing interest from investors around the world.
[According to] our 2020 Global Sustainable Investing Survey, 50% of respondents—across 425 clients with $25 trillion in assets—plan to double their sustainable assets under management in the next five years.”
Sustainable investing combines traditional investment approaches with environmental, social and governance (ESG) insights. And one of the simplest ways to create a more sustainable portfolio is through exchange-traded funds, or ETFs, which are more accessible than ever.
“Sustainable investing used to cater to larger investors and was often considered to have high fees with high minimums, and be only values-focused and indifferent to performance,” says Kjellberg. “But ETFs are helping to upend these perceptions by delivering choice, value and access to all investors—and at a fraction of the cost of traditional mutual funds.”
Why invest sustainably? Consider performance—three in four sustainable equity funds beat their Morningstar category average in 2020.2 And the ability to meet sustainable objectives. Just consider that $1 million invested in iShares ESG Aware MSCI USA ETF implies an annual reduction of carbon emissions equivalent to 43,441 miles driven by an average passenger car.3
1. BlackRock Sustainable Investing, with data from Broadridge and Simfund. January 1, 2016–September 30, 2020.
2. Morningstar, “Sustainable Equity Funds Outperform Traditional Peers in 2020.” Based on an analysis of 200 U.S. mutual funds and exchange-traded funds. Morningstar, as of December 31, 2020. Comparison of sustainable equity ETFs and mutual funds versus their respective Morningstar categories using rankings based on total return.
Morningstar defines sustainable funds as those that emphasize the use of environmental, social and governance criteria to generate financial return and broader societal impact. Past performance does not guarantee future results.
3. iShares ESG Aware MSCI USA ETF (ESGU) Impact Report. Source for carbon emissions: MSCI ESG Fund Ratings provided by MSCI ESG Research LLC as of July 19, 2021, based on holdings as of May 31, 2021. The carbon emissions reduction for ESGU (98.71% carbon coverage by MSCI ESG Fund Ratings) is calculated relative to the carbon emissions of its parent index, the MSCI USA Index (99.84% carbon coverage by MSCI ESG Research). ESGU’s total carbon emissions are 33.61 tons CO2 per million dollars invested; MSCI USA’s total carbon emissions are 51.11 tons CO2 per million dollars invested.
Total emissions reduction is 17.51 tons CO2 per million dollars invested. Source for equivalents: MSCI ESG Fund Ratings with data from U.S. EPA’s Greenhouse Gas Equivalencies Calculator for CO2 and energy measures. Carbon coverage is the percentage of a portfolio’s market value with Carbon Intensity data. Please refer to the MSCI ESG Fund Ratings Methodology for more information. There may be material differences between the fund’s index and the parent index including without limitation holdings, index provider, methodology and performance.
4. The business involvement screens are based on revenue or percentage of revenue thresholds for certain categories and categorical exclusions for others. Please read the definition for each screen here.
5. Screens are based on revenue or percentage of revenue thresholds for certain categories (e.g., $500 million or 50%) and categorical exclusions for others (e.g., nuclear weapons). MSCI, the fund’s index provider, screens companies with involvement in fossil fuels by excluding any company in the energy sector as per GICS methodology and all companies with an industry tie to fossil fuels such as thermal coal, oil and gas—in particular, reserve ownership, related revenues and power generation.
Companies that meet the fossil fuel involvement screen but that derive more than 50% of revenues from alternative energy and do not have an industry tie to thermal coal or oil sands or have fossil fuel reserves used most likely for energy applications, as determined by MSCI, will be added back.
Carefully consider the Funds’ investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds’ prospectuses or, if available, the summary prospectuses, which may be obtained by visiting http://www.iShares.com or http://www.blackrock.com. Read the prospectus carefully before investing.
Investing involves risk, including possible loss of principal.
A fund’s environmental, social and governance (“ESG”) investment strategy limits the types and number of investment opportunities available to the fund and, as a result, the fund may underperform other funds that do not have an ESG focus. A fund’s ESG investment strategy may result in the fund investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards. In addition, companies selected by the index provider may not exhibit positive or favorable ESG characteristics.
International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. These risks often are heightened for investments in emerging/developing markets and in concentrations of single countries.
Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. The iShares Global Green Bond fund’s green bond investment strategy limits the types and number of investment opportunities available to the Fund and, as a result, the Fund may underperform other funds that do not have a green bond focus.
The Fund’s green bond investment strategy may result in the Fund investing in securities or industry sectors that underperform the market as a whole or underperform other funds with a green bond focus. In addition, projects funded by green bonds may not result in direct environmental benefits.
When comparing stocks or bonds and ETFs, it should be remembered that management fees associated with fund investments are not borne by investors in individual stocks or bonds. Buying and selling shares of ETFs may result in brokerage commissions. Diversification and asset allocation may not protect against market risk or loss of principal.
Funds that concentrate investments in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and than the general securities market.
The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective. The information presented does not take into consideration commissions, tax implications, or other transaction costs, which may significantly affect the economic consequences of a given strategy or investment decision.
This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.
Prepared by BlackRock Investments, LLC, member FINRA.
Certain information ©2021 MSCI ESG Research LLC. Reproduced by permission; no further distribution. Certain information contained herein (the “Information”) has been provided by MSCI ESG Research LLC, a RIA under the Investment Advisers Act of 1940, and may include data from its affiliates (including MSCI Inc. and its subsidiaries (“MSCI”)), or third party suppliers (each an “Information Provider”), and it may not be reproduced or disseminated in whole or in part without prior written permission.
The Information has not been submitted to, nor received approval from, the US SEC or any other regulatory body. The Information may not be used to create any derivative works, or in connection with, nor does it constitute, an offer to buy or sell, or a promotion or recommendation of, any security, financial instrument or product or trading strategy, nor should it be taken as an indication or guarantee of any future performance, analysis, forecast or prediction. Some funds may be based on or linked to MSCI indexes, and MSCI may be compensated based on the fund’s assets under management or other measures.
MSCI has established an information barrier between equity index research and certain Information. None of the Information in and of itself can be used to determine which securities to buy or sell or when to buy or sell them. The Information is provided “as is” and the user of the Information assumes the entire risk of any use it may make or permit to be made of the Information.
Neither MSCI ESG Research nor any Information Party makes any representations or express or implied warranties (which are expressly disclaimed), nor shall they incur liability for any errors or omissions in the Information, or for any damages related thereto. The foregoing shall not exclude or limit any liability that may not by applicable law be excluded or limited.
iSHARES and BLACKROCK are trademarks of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners.
By : Suchi Rudra
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Sustainable Funds Continue to Rake in Assets During the Second Quarter”. Morningstar.com. Retrieved 18 August 2020.
A Broken Record: Flows for U.S. Sustainable Funds Again Reach New Heights”. Morningstar.com. Retrieved 29 January 2021.
Sustainable fund assets hit record $1.7 trln in 2020: Morningstar”. Reuters. Retrieved 28 January 2021.
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G7 Pensions Roundtable : Les ODD (‘SDGs’) Désormais Incontournables”. Cahiers du Centre des Professions Financières. CPF. SSRN 3545217. Retrieved 17 March 2020.
Group of top CEOs says maximizing shareholder profits no longer can be the primary goal of corporations”. Washington Post. WP. Retrieved 17 March 2020.
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