BlackRock, State Street launch ETFs targeting low-carbon businesses

By Toni Weeks

San Luis Obispo, Calif., Dec. 11 – BlackRock, Inc. and State Street Global Advisors have each launched a new exchange-traded fund meant to offer socially responsible investing by targeting portfolio companies that are carbon efficient. BlackRock’s fund is called the iShares MSCI ACWI Low Carbon Target ETF (NYSE Arca; CRBN), while State Street’s version is SPDR MSCI ACWI Low Carbon Target ETF (NYSE Arca: LOWC).

Carol Boykin, representative of the Secretary-General for the investment of the assets of the United Nations Joint Staff Pension Fund, said that investors are paying close attention to the risk posed to their investments by climate change.

“At the UN Secretary-General’s Climate Summit on Sept. 23, world leaders in government, business, finance and civil society were called upon to initiate transformative action to reduce emissions and build resilience to the adverse impacts of climate change. The United Nations Joint Staff Pension Fund welcomes the creation of a new lower carbon index and related ETFs as a responsible approach to environmentally sustainable investing and a positive response to the Secretary-General’s call for action,” she said in a press release.

BlackRock’s iShares MSCI ACWI Low Carbon Target ETF is designed for investors interested in environmental sustainability without divestment and provides transparency to the carbon footprint of their investments. By overweighting companies with low carbon emissions relative to sales and those with low potential carbon emissions per dollar of market capitalization, it aims to maintain exposure to global equity while accounting for carbon exposure.

Relative to the standard ACWI index, the ETF’s underlying holdings produce 81% less carbon emissions and 97% less potential carbon emissions from fossil fuel reserves, the company said in the press release.

“With iShares MSCI ACWI Low Carbon Target ETF, we are helping investors to look at socially responsible investing through the lens of long-term investment returns and in the process helping them to take action with their portfolios,” Daniel Gamba, head of iShares Americas institutional business, added in the release.

According to a separate press release, the State Street fund, developed in conjunction with the United Nations Joint Staff Pension fund, is a new vehicle that seeks to provide access to the potentially long-term growth opportunities of companies that are carbon efficient while reducing exposure to assets vulnerable to the transition to a low carbon economy.

“We are proud to support the Secretary General and the United Nations Joint Staff Pension fund in expanding the reach of low carbon initiatives,” James Ross, executive vice president and global head of SPDR ETFs, said in the press release.

“In combining the advantages of low carbon investment exposure with the benefits of the ETF structure, LOWC offers a powerful value proposition for investors seeking to reduce their carbon risk exposure while maintaining the benefits of broad global diversification,” added Christopher McKnett, head of ESG Investments at State Street Global Advisors.

The iShares fund launched on Tuesday, two weeks after the Nov. 26 launch of the State Street fund.

Underlying index

The ETFs are both based on an index created this past fall by MSCI Inc., the MSCI ACWI Low Carbon Target index, which is designed to address two dimensions of carbon exposure: carbon emissions and potential carbon emissions from fossil fuel reserves.

As previously reported, the index is designed to address two dimensions of carbon exposure: carbon emissions and fossil fuel reserves, expressed as potential emissions. By overweighting companies with low carbon emissions relative to sales and per dollar of market capitalization, the index aims to reflect a lower carbon exposure than that of the broad market.

The index is a subset of the MSCI ACWI index. Securities in the parent index are assigned a “carbon exposure” measured in terms of greenhouse gas emissions, relative to sales and potential carbon emissions from fossil fuels, per dollar of market capitalization. They are then selected to minimize carbon exposure, subject to a tracking error constraint of 30 basis points relative to the parent index, along with other criteria.

iShares’ ETF

According to the iShares Trust prospectus, the new ETF is under the management of Matthew Goff, Diane Hsiung, Jennifer Hsui and Greg Savage.

There are no shareholder fees. Including management fees of 0.33% and taking into account a fee waiver agreement with the investment adviser, total annual fund operating expenses are expected to be 0.2%.

San Francisco-based BlackRock Fund Advisors is the investment adviser.

State Street’s ETF

In its prospecus, the State Street fund said that Mike Feehily, John Tucker and Karl Schneider are the portfolio managers.

There are no shareholder fees. Total annual fund operating expenses consist solely of a 0.3% management fee.

Boston-based SSgA Funds Management, Inc. is the investment adviser.

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