BlackRock removes European ETFs with ESG problems sooner

BlackRock moves faster to remove companies from ETFs in Europe that have ESG issues.

Some of BlackRock’s iShares exchange-traded funds are getting rid of companies with low ESG standards more quickly.

The “fast-exit” rule, which the asset manager implemented in December, is applicable to its European-listed ESG ETFs that use MSCI custom indices.

A spokesman for the company said that these indices cover 41 products and $70.5 billion in assets. Removal could happen in 45 days, which is about half as long as it took before.

A company could be taken off the index if its MSCI ESG Controversies score drops to zero or if the index provider thinks it breaks the UN Global Compact. The spokesman said that MSCI would look at companies once a month to see if they should be taken out.

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The change came about because German wealth managers told BlackRock that they wanted companies with the most controversial ESG issues taken off the list more quickly.

In February 2023, BlackRock also got less time to deal with companies in the MSCI ESG-screened index ETF series.

This series has six funds with $15 billion in assets, and BlackRock had less time to deal with these companies. MSCI made a number of other changes after talking with market participants for months about how to improve the ESG credentials of these ETFs to match changes in European regulations. It added a 30% reduction in carbon intensity compared to the parent index and left out companies that get more than 5% of their income from making or selling palm oil or getting oil and gas from the Arctic.

MSCI said in February that companies with an MSCI ESG Controversy Score of 1 out of 9 in land use, biodiversity, or supply chain management would also be left out.

The faster time frames for getting rid of companies with questionable ESG practices show how ESG concerns are changing the way index investing works.

Manuela Sperandeo, head of sustainable indexing at BlackRock in London, said, “The business world is moving away from the idea that index investing is passive.”


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