Vanguard, BlackRock Offer New ETFs Focused on Climate Change

There’s no denying that environmental, social and governance (ESG) investing has become one of the hot sectors amid the Covid-19 pandemic. Add that space to the already growing exchange-traded fund (ETF) arena and you have a potent formula for investor interest–one that global investment giants Vanguard and BlackRock are finding opportunities with in climate change.

“Top asset managers Vanguard Group Inc and BlackRock Inc on Thursday introduced new exchange-traded funds that exclude oil companies, coal producers and other industries that a growing number of investors want to avoid,” a Reuters report noted. “The so-called ESG funds use environmental, social or governance criteria to pick investments.”

“In our conversations clients continuously bring up the topic,” said Rich Powers, head of ETF product management for Vanguard.

The popularity of ESG funds was even more apparent this summer even as the world was caught in the throes of the Covid-19 pandemic.

“Researcher Morningstar Inc found flows into such funds reached a record pace this year, taking in $20.9 billion through June, just shy of the annual record of $21.4 billion for all of 2019,” the article continued. “The demand partly reflects the performance of the funds, which has often topped traditional investment products this year. That was despite many funds being held back by strategies such as not owning high-performing energy stocks, as second-quarter results showed.”

While in Europe, ESG funds that focus on the bond market are a popular product, that hasn’t translated to similar success in the U.S. This is where Vanguard sees an opportunity.

“The Vanguard ESG U.S. Corporate Bond ETF, the company’s first fixed income offering in the sector, will track the Bloomberg Barclays MSCI U.S. Corporate Select Index, which excludes oil and gas, alcohol and civilian firearms companies,” the report added.

Other ESG Options in ETFs

Investors looking at other ESG ETF options in the space can look to funds like the Xtrackers MSCI USA ESG Leaders Equity ETF (NYSE Arca: USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.

One ETF with a focus on low carbon emissions is the iShares MSCI ACWI Low Carbon Target ETF (CRBN). The fund seeks to track the investment results of 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.

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