BlackRock has launched a new ETF in Australia providing low-cost exposure to Australian equities with robust environmental, social, and governance (ESG) credentials.

The fund becomes the lowest-cost ETF in Australia providing ESG-focused equity exposure.

The iShares Core MSCI Australia ESG Leaders ETF (IESG AU) has listed on the Australian Securities Exchange and comes with a management fee of just 0.09%, making it the cheapest fund to offer this type of exposure.

The ETF is linked to the MSCI Australia IMI Custom ESG Leaders Index which selects its constituents from the MSCI Australia IMI Index universe of large, mid, and small-cap Australian stocks.

The methodology first screens out companies embroiled in severe ESG-related controversies as well as violators of UN Global Compact principles and those with business operations in controversial industries including adult entertainment, alcohol, fossil fuels, gambling, nuclear power, natural gas, nuclear weapons, oil sands, thermal coal, tobacco, and weapons.

The remaining firms are then assigned an overall company ESG rating based on research from MSCI’s ESG research division. The rating – one of seven grades from ‘AAA’ to ‘CCC’ – indicates how well the firm manages key ESG issues relative to industry peers. Firms with ratings below BB (lower-average) are not eligible for inclusion.

Companies are ranked within their GICS sectors based on a combination of market capitalization, ESG score, and ESG Trend (firms with improving ESG scores rank higher). The index selects the highest-ranked securities while targeting a 50% sector representation versus the parent universe.

Constituents are weighted by float-adjusted market capitalization subject to a cap of 10% or 2.5% in excess of the stock’s weight in the parent universe. The index is reconstituted and rebalanced on an annual basis with buffer rules helping to limit unnecessary turnover.

As of 3 June, stocks from the financials and materials sectors dominated with weights of 25.1% and 21.6%, respectively, while the next largest sector weights were health care (15.7%), real estate (10.5%), and consumer discretionary (8.7%). Notable positions included Commonwealth Bank of Australia (11.5%), CSL (10.0%), Wesfarmers (6.6%), Macquarie Group (5.5%), and Fortescue Metals (4.2%).

Other ETFs in the ESG Australia equity segment include the A$1 billion BetaShares Australian Sustainability Leaders ETF (FAIR AU), which comes with a management fee of 0.49%; the A$300m Russell Investments Australian Responsible Investment ETF (RARI AU), 0.45%; the A$60m VanEck Vectors MSCI Australian Sustainable Equity ETF (GRNV AU), 0.35%; the A$30m Vanguard Ethically Conscious Australian Shares ETF (VETH AU), 0.16%; and the A$20m SPDR S&P/ASX 200 ESG ETF (E200 AU), 0.13%.