Institutional investors have invested $ 1.25 billion in a new US fund aimed at identifying the winners of the transition to a low-carbon world, making it the largest exchange-traded fund launch ever and highlighting demand growing number of ESG products.
The BlackRock US Carbon Transition Readiness fund began operations on Thursday, eclipsing the previous largest ETF listing, the iShares ESG MSCI USA Leaders fund, which debuted with $ 850 million in May 2019.
A sister fund that invests in non-U.S. Companies was also launched on Thursday after attracting $ 475 million from investors, also one of the largest new ETFs ever to launch.
Rather than excluding companies that score poorly on climate-related metrics, the new ETFs take an underlying stock index – the Russell 1000 Index and the ex-US MSCI All World, respectively – and assign portfolio weights that reflect a carbon transition readiness score.
“Winners and losers will emerge in every sector and industry based on each company’s ability to adapt and pivot its strategies and business models,” said Larry Fink, Managing Director of BlackRock.
“More and more capital is being allocated to sustainable strategies. These funds will allow investors to understand which companies are growing faster than others. “
ESG investing aims to channel money towards companies with strong environmental, social and governance backgrounds. Total industry assets rose 50% last year to a record $ 1.7 billion, according to Morningstar.
At the same time, a growing number of governments, companies and asset managers have committed to achieving a goal of zero net greenhouse gas emissions by 2050. Carbon transition ETFs are presented as a means of ‘encourage the trend – and profit from it.
“These ETFs represent a way to find directions that will change the way their business thinks about climate change,” said Christopher Ailman, chief investment officer for the California State Teachers’ Retirement System, or Calstrs.
The emphasis many business leaders place on industry comparisons will increasingly include their carbon footprint and how it affects their stock price, Ailman said. “What gets measured gets managed.”
Calstrs contributed $ 650 million to the new US ETF and $ 350 million to the global fund. Other investors supporting the launches included Temasek, Sura Asset Management, Varma Mutual Pension Insurance Company, Profuturo Group, FM Global and RenaissanceRe.
ETF companies are rated on a “carbon transition readiness” score that reflects their dependence on energy production, clean technology, energy, waste and waste management. water. A higher carbon emission reduction rate will result in a company’s overweighting in ETFs relative to its industry competitors. The data is derived internally by BlackRock through Aladdin Climate and by third party vendors such as MSCI, Sustainalytics and Refinitiv.
Companies actively transitioning to a low-carbon economy are expected to outperform in the long run, which benefits investors, said Ailman of Calstrs.
“As a long-term investor, we are looking for a big wave that we can ride and while the transition to a more low-carbon world will take time, our portfolios need to mitigate climate change risks. In order to achieve a net zero carbon goal by 2050 or earlier, investors must start now. “
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