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Jul 7, 2022

BlackRock sees 30% jump in flows to suite of climate ETFs

Large company names showcase 'Climate Hypocrisy': Manulife's senior financial advisor

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BlackRock Inc.’s greenest exchanged-traded funds have seen a 30 per cent increase in inflows as investors seek out the most credible ESG products amid a wider cooling toward the industry.

The nine ETFs, which have tracked EU-regulated climate transition benchmarks since October, attracted a net US$2.7 billion this year as of mid-June, bringing the total amount held in the funds to US$11.6 billion, BlackRock said.

“Regardless of regulatory designation, climate is becoming a prevalent consideration in defining European clients’ sustainable investment goals,” Manuela Sperandeo, head of EMEA sustainable indexing at BlackRock in London, said by email.

The climate ETFs have managed to draw buyers despite growing questions about the investment choices by managers of environmental, social and governance funds. More than half of the institutional investors surveyed by Schroder Investment Management now say the industry’s performance is a main concern, up from roughly 38 per cent a year ago. 

In Europe, investors have pulled about US$117 billion from so-called light-green products — known as Article 8 — in the past year. In the same period, Bloomberg data show that US$6 billion went into dark-green funds such as the BlackRock climate ETFs, which are also known as Article 9 in EU ESG terminology. 

BlackRock’s climate ETFs — iShares MSCI ESG Enhanced UCITS ETFs — track benchmarks that were adjusted late last year to comply with the EU’s Climate Transition Benchmark rules. That means they’re aligned with the Paris climate accord, and its key goal of limiting temperature gains to 1.5 degrees Celsius.

“Through product development, we’re giving clients more choice in how they can incorporate climate risk in their portfolios, which is reflected by the flows into our funds,” Sperandeo said.

The Association of the Luxembourg Fund Industry estimates that funds tied to EU climate benchmarks now represent about 9 per cent of the total index-tracking ESG fund market. The number of equity funds alone climbed to 78 in May from 24 a year earlier, with assets under management of about 45 billion euros (US$46 billion), according to figures compiled by the European Securities and Markets Authority.

The EU imposed criteria for climate benchmarks a couple of years ago to protect investors from greenwashing, after asset managers offered new funds tied to different indexes, all purporting to be low carbon. Under the rules, a climate-transition or Paris-aligned benchmark must include a broad universe of investible assets that have a smaller carbon footprint and require annual emission reductions.