BlackRock to switch two €1.4 billion corporate bond ETFs to ESG indices

Increase in demand for ESG characteristics, according to BlackRock

BlackRock is proposing to replace the index of two corporate bond ETFs with indices that track ESG metrics as demand for sustainable investing continues to rise.

In a recent notice to shareholders, BlackRock announced that it was proposing to change the index to the €1.4 billion iShares € Corp Bond ex-Financials 1-5yr UCUTS ETF (EUNS) and the €1.4 billion iShares € Corp Bond ex-Financials 1-5yr UCUTS ETF (EUNS) Euro iShares € Corp Bond ex-Financials UCITS ETF (EEXF).

Following the change, EEXF will move from tracking Bloomberg Barclays Euro Corporate ex-Financials Bond Index to Bloomberg MSCI Euro Corporate ex Financials Sustainable SRI Index while EUNS will start tracking Bloomberg MSCI Euro Corporate ex Financials Index 1 -5 Year Sustainable SRI.

As a result, both ETFs will have ESG added to their names while the total expense ratios (TERs) will remain at 0.20%, respectively.

In a note to shareholders, BlackRock said: “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, such improvements are in the best interests of investors.”

Both indices follow the methodology of the Bloomberg Euro Aggregate Corporate Index with additional ESG criteria.

It will include issuers with an MSCI rating of BBB or higher and will exclude issuers involved in certain industries, including alcohol, tobacco, gambling, adult entertainment, genetically modified organisms, nuclear energy, civilian firearms, conventional, nuclear and controversial weapons, thermal coal and fossil fuels.

Issuers with a “red” MSCI controversy score will also be removed from the indices.

As a result, EEFX will increase from tracking 1998 stocks to 1313, while the number of stocks tracked by EUNS will increase from 972 to 627.

EEXF and EUNS shareholders were invited to vote on the changes at an extraordinary general meeting on March 25, with the changes due to take place on April 19.

It follows a long series of ESG changes from Europe’s largest issuer over the past six months, including its €1.8 billion iShares € Aggregate Bond UCITS ETF (SEAG).

However, last month BlackRock failed to obtain the required level of shareholder approval to add two reduced carbon and ESG filters to the $46.7 million iShares MSCI World Consumer Staples Sector UCITS (WCSS) ETF and to the $22.7 million iShares MSCI World Consumer Discretionary Sector UCITS ETF. (WCDS).

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