BlackRock adds an ESG filter to its euro bond ETF

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Europe’s largest issuer continues to green its portfolio

BlackRock has revealed plans to switch to an ESG index on its euro bond ETF due to “increased investor demand”.

In a letter to shareholders, the asset management giant said the €1.8 billion iShares € Aggregate Bond UCITS ETF (SEAG) will move from tracking the Bloomberg Euro Aggregate Bond Index to Bloomberg MSCI Euro Aggregate Sustainable and Green Bond SRI Index.

As a result, the ETF will change its name to iShares € Aggregate Bond ESG UCITS ETF, trade under the same symbol and be classified as Article 8 under the Sustainable Finance Disclosure Regulation (SFDR).

BlackRock said there would be a 3 basis point charge on the ETF following the change, but the total expense ratio (TER) would remain at 0.15%.

The letter read: “We have seen increased demand from investors to evolve the existing fund to adopt ESG characteristics while maintaining its broad market exposure.

“We believe that where improvements can be made to improve the ESG characteristics of a portfolio while continuing to provide a similar or improved risk/return profile, these improvements are in the best interests of investors.”

The change will see an ESG overlay added to the index’s methodology tailored to the sovereign, government-related, corporate and securitized portions of its investment universe, with a minimum allocation of 10% to green bonds.

On the slightly more contentious issue of applying an ESG screen to sovereign bonds, BlackRock said it would measure each issuer’s involvement in major ESG controversies and how well they adhere to “international standards and principles”. .

He added that bonds not classified as green bonds must be rated BBB or higher under the MSCI rating methodology.

In addition, the MSCI SRI filter excludes issuers involved in commercial activities such as alcohol, tobacco, gambling, adult entertainment, genetically modified organisms, nuclear energy, civilian firearms and military weapons.

As a result of the change, the number of reference constituents will increase from 6401 to 5325.

Shareholders will vote on the changes at an extraordinary general meeting on February 25 and the proposed changes will take place on March 18.

This is the latest in a series of index shifts across the company’s ETF range, including five sector ETFs to indices that implement carbon and ESG reduction measures.

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