BlackRock has launched a new ETF in the US providing broad exposure to developed markets outside of the US while adhering to the carbon reduction objectives outlined in the Paris Agreement.
BlackRock now offers two Paris-aligned ETFs targeting US equities and developed market stocks outside of the US.
The iShares Paris-Aligned Climate MSCI World ex USA ETF (PABD US) has been listed on Nasdaq with an expense ratio of 0.12%.
The fund is linked to the MSCI World ex USA Climate Paris Aligned Benchmark Extended Select Index which is based on the parent MSCI World ex USA Index, a broad market benchmark capturing the performance of large and mid-cap equities and covering approximately 85% of the float-adjusted market capitalization in developed market countries, excluding the US.
Companies embroiled in severe ESG-related controversies as well as firms with business operations linked to weapons, tobacco, thermal coal, oil & gas, and oil sands are excluded.
MSCI’s Climate Paris Aligned methodology then reweights remaining securities based on the risks and opportunities associated with the climate transition while also seeking to minimize exclusions from the parent index.
MSCI harnesses a diverse range of data and analytical tools to aid in index construction. This includes scope 1, 2, and 3 carbon emissions, green revenues, and the index provider’s own proprietary low carbon transition score and climate value-at-risk measures.
The index offers an immediate 50% reduction in weighted average carbon intensity as well as a further 10% annual decarbonization going forward. These conditions satisfy the Paris-aligned Benchmark (PAB) requirement, aligning the strategy with a trajectory to limit global warming to 1.5°C by 2050.
In addition to the above primary objectives, the index aims to achieve secondary objectives such as maximizing exposure to sustainable energy providers, increasing the weight of companies with clear carbon reduction targets, minimizing fossil fuel exposure, reducing climate value-at-risk by 50%, and maintaining a modest tracking error relative to the parent index.
As of the end of 2023, the index contained 514 constituents compared to 871 for the MSCI World ex USA. Stocks from Japan accounted for one-fifth of the index weight with the next-largest country exposures being Canada (12.6%), France (10.4%), the UK (10.2%), and Switzerland (10.0%).
The index’s sector allocation was led by financials (23.2%) and industrials (18.6%), followed by health care (12.6%), consumer discretionary (10.2%), and information technology (10.2%).
There was considerable diversification at the stock level with the largest constituent, Novo Nordisk, accounting for a weight of just 2.0%.
The fund complements the $1.7 billion iShares Paris-Aligned Climate MSCI USA ETF (PABU US) which delivers MSCI’s Paris-aligned methodology to a universe of large and mid-cap stocks listed in the US. PABU comes with an expense ratio of 0.10%.