iShares Launches New ESG Advanced ETF Series – 3 New Equity ESG ETFs
iShares launched in 2020 three new equity ETFs under their ‘ESG Advanced’ series. The iShares ESG Advanced ETF series prioritize higher-rated ESG companies and excludes companies within controversial businesses. Overall, the iShares ESG Advanced ETF series offers good investment options for sustainable investors
Intro
In 2020, iShares launched three new equity ETFs and one bond ETF under their ‘ESG Advanced’ series. The new ESG Advanced ETFs are expected to be the most sustainable products among iShares ETFs, with stronger ESG criteria than the ‘ESG Aware’ and ‘ESG Screened’ series.
The new ESG Advanced ETFs are:
- iShares ESG Advanced MSCI USA ETF (USXF), covering large and mid-cap US stocks with leading environmental, social, and governance (ESG) practices.
- iShares ESG Advanced MSCI EAFE ETF (DMXF), covering large and mid-cap stocks in Europe, Australia, Asia, and the Far East with leading environmental, social, and governance (ESG) practices.
- iShares ESG Advanced MSCI EM ETF (EMXF), covering large and mid-cap emerging market stocks with leading environmental, social, and governance (ESG) practices.
- iShares ESG Advanced Total USD Bond Market ETF (EUSB), targeting investment grade or high-yield bonds from issuers with leading environmental, social, and governance (ESG) practices.
In this article, we will focus on the first three equity ETFs (USXF, DMXF, and EMXF). We will evaluate the ‘ESG Advanced’ methodology and respective index, the ETFs’ sustainability performance, and look into their top holdings.
This article focus on US-based ETFs. European investors can find our review of iShares ESG ETF here
The iShares ESG series
US-based investors already had access to some iShares ‘ESG Aware’ ETFs. The new ‘ESG Advanced’ ETFs come to complement and strengthen the iShares ESG offering. Three new ‘ESG Screened’ ETFs have also been added to the iShares ESG portfolio in 2020.
Below the iShares definition of each ESG series:
- ESG Screened has the weakest ESG criteria, with an exclusionary approach. The ‘ESG Screened’ only excludes companies in certain controversial businesses.
- ESG Aware is one step ahead of the ‘ESG Screened’ products, seeking exposure to similar risks and returns as the broad ETFs while targeting slightly more sustainable companies
- ESG Advanced excludes companies involved in controversial business but also targets higher-rated ESG companies with MSCI ESG ratings equal or higher than ‘BBB’.
The MSCI Choice ESG Screened Index
All three ‘ESG Advanced’ ETFs track the MSCI Choice ESG Screened Index. To be eligible for the index companies need to fulfill the following criteria:
- ESG rating eligibility: companies are required to have an MSCI ESG Rating of ‘BBB’ or above for inclusion
- ESG controversies eligibility: companies are required to have an MSCI ESG Controversies Score of 3 or above for inclusion. The Controversies Score goes has a 0-10 scale, with “0” being the most severe controversy.
- Controversial business involvement: companies that are involved and meet the MSCI business involvement criteria in any of the following business activities are excluded from the indexes: adult entertainment, alcohol, gambling, tobacco, GMO, controversial weapons, nuclear weapons, civilian firearms, conventional weapons, for-profit prisons, predatory lending, palm oil, nuclear power, fossil fuel.
How sustainable are iShares ESG Advanced ETFs?
All the iShares ESG Advanced ETFs have expense rates (TER) below 0.16% and ESG Global rankings equal to or above the 80th percentile. All three ETFs have low carbon intensity and no revenues from brown energy sources.
USXF and DMXF have MSCI ESG scores of 7.1 and 8.2, respectively. EMXF has only been launched in October 2020 and, consequently, does not have an MSCI ESG Score yet.
| ETF List | Ticker | AUM ($ million) | TER (%) | MSCI ESG Rating | MSCI ESG Score | Global rank | Carbon Intensity | FFF Rating | Brown revenue (%) |
|---|---|---|---|---|---|---|---|---|---|
| iShares ESG Advanced MSCI USA | USXF | 126 | 0.10% | A | 7.1 | 83 | 75.1 | A | 0 |
| iShares ESG Advanced MSCI EAFE | DMXF | 95 | 0.12% | AA | 8.2 | 95 | 74.3 | B | 0 |
| iShares ESG Advanced MSCI EM | EMXF | 17 | 0.16% | A | - | 80 | 100.7 | A | 0 |
At first, we can conclude that the iShares ESG Advanced ETFs have good ESG ratings and are being effective in excluding controversial businesses and selecting companies with higher ESG ratings.
When looking back at the iShares portfolio of equity sustainable ETFs (below), we note that when ranking the ETFs by the MSCI ESG Quality Score, USXF has the same score as iShares ESG Aware MSCI EAFE ETF (ESGD). This indicates that companies from Europe, Australia, Asia, and the Far East tend, on average, to have higher ESG scores than US companies.
Also, interesting to note is the spread between the top and bottom-ranked ETFs. DMXF ESG score (8.2) is 50% higher than ESML (5.5) and almost 40% higher than the popular iShares ESG Aware MSCI USA ETF (ESGU).
Top 20 holdings of each iShares ESG Advanced ETF
When looking at the top holdings of each ESG Advanced ETFs, we can conclude that the ETFs are all well-diversified with at least 300 holdings each, and with not too much weight on the top 10.
The EMXF is the only ETF with a cap threshold of 5% required by its Index. DMXF also has a low concentration at its top holdings. USXF, however, is highly exposed to Google, having 8.6% of its assets allocated to Alphabet stocks Class A and C.
Regarding sector exposure, USXF is mostly exposed to the Information Technology sector with 30.3%. DMXF and EMXF are mostly exposed to the Financial sector with 20.2% and 32.2%, respectively.
Top holdings of USXF, including ESG ratings
Note: MSCI ESG ratings go from CCC (laggard) to AAA (leader). Sustainalytics ESG risk ratings go from 0 (negligible) to 40+ points (severe). For more on that check our In-Depth ESGV Review Using ESG Rating Agencies’ Data.
| Ticker | Name | Weight | MSCI | Sustainalytics |
|---|---|---|---|---|
| GOOGL | ALPHABET INC CLASS A | 4.3 | BBB | 22.3 |
| GOOG | ALPHABET INC CLASS C | 4.3 | BBB | 22.3 |
| TSLA | TESLA INC | 3.4 | A | 31.3 |
| V | VISA INC CLASS A | 2.5 | A | 17.4 |
| NVDA | NVIDIA CORP | 2.3 | AAA | 13.4 |
| HD | HOME DEPOT INC | 2.2 | AA | 11.6 |
| MA | MASTERCARD INC CLASS A | 2.2 | A | 16.3 |
| PYPL | PAYPAL HOLDINGS INC | 1.9 | A | 17.7 |
| VZ | VERIZON COMMUNICATIONS INC | 1.6 | BBB | 18.1 |
| ADBE | ADOBE INC | 1.6 | AA | 10.9 |
| CSCO | CISCO SYSTEMS INC | 1.5 | AA | 12.6 |
| KO | COCA-COLA | 1.5 | AA | 25.3 |
| CRM | SALESFORCE.COM INC | 1.4 | AA | 11.2 |
| PEP | PEPSICO INC | 1.3 | AA | 17.7 |
| TMO | THERMO FISHER SCIENTIFIC INC | 1.2 | BBB | 14.0 |
| TXN | TEXAS INSTRUMENT INC | 1.2 | AAA | 17.6 |
| UNP | UNION PACIFIC CORP | 1.0 | BBB | 22.2 |
| LIN | LINDE PLC | 1.0 | A | 10.0 |
| AMGN | AMGEN INC | 1.0 | AA | 19.1 |
Top holdings of DMXF, including ESG ratings:
| Name | Weight | MSCI | Sustainalytics |
|---|---|---|---|
| ASML HOLDING NV | 2.9 | AAA | 12.8 |
| TOYOTA MOTOR CORP | 1.8 | BBB | 30.4 |
| AIA GROUP LTD | 1.6 | A | 14.3 |
| SONY GROUP CORP | 1.5 | AAA | 14.0 |
| SOFTBANK GROUP CORP | 1.4 | BBB | 29.2 |
| SAP | 1.4 | AAA | 10.2 |
| ASTRAZENECA PLC | 1.4 | AA | 24.9 |
| NOVO NORDISK CLASS B | 1.3 | AAA | 22.4 |
| ALLIANZ | 1.1 | AAA | 14.8 |
| LOREAL SA | 1.1 | AAA | 20.5 |
| CSL LTD | 1.0 | A | 24.8 |
| KEYENCE CORP | 1.0 | BBB | 13.7 |
| SCHNEIDER ELECTRIC | 0.9 | AAA | 17.4 |
| LAIR LIQUIDE SOCIETE ANONYME | 0.8 | A | 13.5 |
| BNP PARIBAS SA | 0.7 | AA | 25.7 |
| RECRUIT HOLDINGS LTD | 0.7 | A | 12.8 |
| DEUTSCHE TELEKOM N AG | 0.7 | BBB | 16.4 |
| MITSUBISHI UFJ FINANCIAL GROUP INC | 0.7 | BBB | 26.9 |
| ZURICH INSURANCE GROUP AG | 0.7 | AA | 18.0 |
Top holdings of EMXF, including ESG ratings:
| Ticker | Name | Weight | MSCI | Sustainalytics |
|---|---|---|---|---|
| 2330 | TAIWAN SEMICONDUCTOR MANUF | 4.8 | AAA | 14.5 |
| 3690 | MEITUAN | 3.9 | A | 25.9 |
| NPN | NASPERS LIMITED N LTD | 3.8 | A | 18.6 |
| 939 | CHINA CONSTRUCTION BANK CORP H | 2.7 | A | 32.1 |
| 2318 | PING AN INSURANCE (GROUP) CO OF CH | 2.5 | A | 19.1 |
| 660 | SK HYNIX INC | 2.3 | BBB | 19.7 |
| INFY | INFOSYS LTD | 2.2 | A | 15.2 |
| NIO | NIO AMERICAN DEPOSITARY SHARES REP | 1.7 | A | - |
| 2269 | WUXI BIOLOGICS CAYMAN INC | 1.5 | A | 23.7 |
| 2454 | MEDIATEK INC | 1.5 | BBB | 24.6 |
| NTES | NETEASE ADR INC | 1.5 | BBB | 18.0 |
| 35420 | NAVER CORP | 1.4 | A | 17.7 |
| TCS | TATA CONSULTANCY SERVICES LTD | 1.4 | AA | 15.3 |
| 6400 | SAMSUNG SDI LTD | 1.1 | A | 21.1 |
| 3968 | CHINA MERCHANTS BANK LTD H | 1.1 | BBB | 32.8 |
| 2010 | SAUDI BASIC INDUSTRIES | 1.0 | BBB | 27.9 |
| HINDUNILVR | HINDUSTAN UNILEVER LTD | 0.9 | A | 25.9 |
| 35720 | KAKAO CORP | 0.9 | BBB | 28.4 |
| YUMC | YUM CHINA HOLDINGS INC | 0.8 | BBB | 23.4 |
Are ‘ESG Advanced’ ETFs better than ‘ESG Aware’ ETFs?
Looking at the MSCI ESG Quality Score from the iShares ESG Advanced ETFs, we can conclude that their scores are not too far from other ‘ESG Aware’ ETFs. DMXF draws with ESGD, while USXF is close to the ESGE score.
However, when looking at the overall sustainability performance of the ‘ESG Advanced’ ETFs, we note that those ETFs have fewer sustainability issues than their ‘ESG Aware’ equivalent:
Are iShares ESG Advanced ETFs good investments?
The iShares ESG Advanced ETFs (tickers USXF, DMXF, and EMXF) are good investment options for sustainable investors. By following the MSCI Choice ESG Screened Index, the ESG Advanced ETFs’ holdings have at least an MSCI ESG Rating of ‘BBB’. Moreover, to be part of the ESG Advanced ETFs, companies are periodically screened and required to pass controversial business involvement criteria.
US-based investors looking to strengthen their sustainable investment portfolio should consider investing in the new ESG Advanced ETFs from iShares.
Not investment advice: The information provided on this website is intended for general information purposes only and does not constitute investment advice, financial advice, trading advice, or any other sort of advice. You should conduct your due diligence and, if necessary, consult a qualified independent financial advisor before making any investment decision.
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4 Comments
Silver · April 2021 at 14:33
Thank you for the analysis and review! Incredibly thorough. I was trying to figure out if it was marketing or actually something worthwhile to consider. It’s good to have an ESG broad based exposure ETF like USXF even if it’s not perfect. Any thoughts on the green bond ETF’s like HYXF.
Fernando · April 2021 at 17:30
Hi Silver, thanks for the feedback.
I have quickly looked into HYXF (or iShares ESG Advanced High Yield Corporate Bond ETF). It is not a green bond ETF, but an ESG bond ETF. This means that companies do not need to follow the Green Principles and the bond will not be financing specific projects with social or environmental impact. HYXF has an ESG Quality Score of only 6.1.
Moreover, among it’s top 10 holdings we can see Royal Caribbean Cruises Ltd, which is operating in an industry with several sustainability issues.
When starting with ESG bonds or green bonds, I would recommend to focus on the latter first, green bonds ETFs. Those have better transparency, accountability and, potentially, better positive impact.
A P · April 2021 at 16:25
Above the heading “Top 20 holdings of each iShares ESG Advanced ETF” there is a fascinating screenshot of an ESG comparison – where can I find this site for comparison? Google doesn’t yield much.
Fernando · April 2021 at 15:31
Hi AP,
That screenshot is from the iShares website. More specifically from this link: iShares sustainable products.
I have also added the link to the post.
All the best,
Fernando