Larry Fink, BlackRock chairman and CEO, may have stopped using the terms “ESG” and “sustainability” in his latest annual letter to investors last March, but BlackRock, the world’s largest asset manager, seems to be doubling down on sustainability investing based on the numerous sustainability exchange-traded funds (ETFs) it has launched in the last few weeks.
As recently as July 1, Blackrock launched a global real estate ETF with a sustainability tilt – the BlackRock Global Real Estate Environment Tilt UCITS ETF (GRET) – on the Euronext Amsterdam exchange.
The GRET ETF tracks the FTSE EPRA Nareit Developed Green Low Carbon Target Select UCITS Capped Index, which uses environmental, social and governance (ESG) screening and tilting methodologies, is designed to have an environmental indicator “at least 20%” better than its investment universe and is also labelled as Article 8 under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
It’s probably safe to say that there is no other global real estate ETF launched this year that is greener than this GRET ETF.
Last month, BlackRock also launched a suite of climate transition ETFs across five markets, also on the Euronext Amsterdam, and all classified as Article 8 under the SFDR:
- iShares MSCI Japan Climate Transition Aware UCITS ETF for Japanese investors
- iShares MSCI US Climate Transition Aware UCITS ETF for US investors
- iShares MSCI EMU Climate Transition Aware UCITS ETF, and
- iShares MSCI Europe Climate Transition Aware UCITS ETF for European investors, as well as the
- iShares MSCI World Climate Transition Aware UCITS ETF for global investors.
These ETFs track their respective regions of the MSCI Transition Aware Select Index, with the aim of including companies that have either set one or more greenhouse gas emission reduction targets approved by the Science Based Targets initiative, derive 20% or more of their revenues from green revenues or have published emission reduction targets.
The fact that the ETFs were launched at the same time in multiple markets is a strong signal that BlackRock is doubling down on sustainability as an investment strategy, at least in the ETF sector.
BlackRock believes that the strong growth of ETFs in general is expected to continue into the foreseeable future based on the following trends:
- strong investor demand
- cheaper ETF investing cost
- general move to financial advisory
- more efficient market access for investors.
The asset manager’s doubling down of sustainability ETFs can only be a good signal for investors who may be having doubts about sustainability investing after the sector’s overall investment performance in 2023.
In 2023, sustainable equity funds lagged behind conventional funds by a small margin, according to Morningstar, with 53% of sustainable funds landing in the bottom half of their respective categories, although they have performed well over a five-year period.
The global ETF market is expected to double every four years in terms of assets under management, according to Invesco, and is projected to reach about US$20 trillion.
In any case, the continuing launch by BlackRock of sustainability ETFs means that it is probably well on its way to tapping what it sees as the massive investment opportunities in ESG as the world transitions to renewable energy, and that the asset manager sees ETFs as its means of providing investors with access to these opportunities, despite the political backlash.
The average annual investment in the global energy system, the BlackRock Investment Institute Transition Scenario predicts, could rise from today’s roughly US$2 trillion a year to US$4.5 trillion a year by the 2040s.
