iShares Launches New ESG Advanced ETF Series – 3 New Equity ESG ETFs

Published by Fernando on

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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 ListTickerAUM ($ million)TER (%)MSCI ESG RatingMSCI ESG ScoreGlobal rankCarbon IntensityFFF RatingBrown revenue (%)
iShares ESG Advanced MSCI USAUSXF1260.10%A7.18375.1A0
iShares ESG Advanced MSCI EAFEDMXF950.12%AA8.29574.3B0
iShares ESG Advanced MSCI EMEMXF170.16%A-80100.7A0

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).

iShares sustainable ETF list: ESG Screened, ESG Aware, ESG Advanced ETFs
iShares portfolio of equity sustainable ETFs

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.

TickerNameWeightMSCISustainalytics
GOOGLALPHABET INC CLASS A4.3BBB22.3
GOOGALPHABET INC CLASS C4.3BBB22.3
TSLATESLA INC3.4A31.3
VVISA INC CLASS A2.5A17.4
NVDANVIDIA CORP2.3AAA13.4
HDHOME DEPOT INC2.2AA11.6
MAMASTERCARD INC CLASS A2.2A16.3
PYPLPAYPAL HOLDINGS INC1.9A17.7
VZVERIZON COMMUNICATIONS INC1.6BBB18.1
ADBEADOBE INC1.6AA10.9
CSCOCISCO SYSTEMS INC1.5AA12.6
KOCOCA-COLA1.5AA25.3
CRMSALESFORCE.COM INC1.4AA11.2
PEPPEPSICO INC1.3AA17.7
TMOTHERMO FISHER SCIENTIFIC INC1.2BBB14.0
TXNTEXAS INSTRUMENT INC1.2AAA17.6
UNPUNION PACIFIC CORP1.0BBB22.2
LINLINDE PLC1.0A10.0
AMGNAMGEN INC1.0AA19.1

Top holdings of DMXF, including ESG ratings:

NameWeightMSCISustainalytics
ASML HOLDING NV2.9AAA12.8
TOYOTA MOTOR CORP1.8BBB30.4
AIA GROUP LTD1.6A14.3
SONY GROUP CORP1.5AAA14.0
SOFTBANK GROUP CORP1.4BBB29.2
SAP1.4AAA10.2
ASTRAZENECA PLC1.4AA24.9
NOVO NORDISK CLASS B1.3AAA22.4
ALLIANZ1.1AAA14.8
LOREAL SA1.1AAA20.5
CSL LTD1.0A24.8
KEYENCE CORP1.0BBB13.7
SCHNEIDER ELECTRIC0.9AAA17.4
LAIR LIQUIDE SOCIETE ANONYME0.8A13.5
BNP PARIBAS SA0.7AA25.7
RECRUIT HOLDINGS LTD0.7A12.8
DEUTSCHE TELEKOM N AG0.7BBB16.4
MITSUBISHI UFJ FINANCIAL GROUP INC0.7BBB26.9
ZURICH INSURANCE GROUP AG0.7AA18.0

Top holdings of EMXF, including ESG ratings:

TickerNameWeightMSCISustainalytics
2330TAIWAN SEMICONDUCTOR MANUF4.8AAA14.5
3690MEITUAN3.9A25.9
NPNNASPERS LIMITED N LTD3.8A18.6
939CHINA CONSTRUCTION BANK CORP H2.7A32.1
2318PING AN INSURANCE (GROUP) CO OF CH2.5A19.1
660SK HYNIX INC2.3BBB19.7
INFYINFOSYS LTD2.2A15.2
NIONIO AMERICAN DEPOSITARY SHARES REP1.7A-
2269WUXI BIOLOGICS CAYMAN INC1.5A23.7
2454MEDIATEK INC1.5BBB24.6
NTESNETEASE ADR INC1.5BBB18.0
35420NAVER CORP1.4A17.7
TCSTATA CONSULTANCY SERVICES LTD1.4AA15.3
6400SAMSUNG SDI LTD1.1A21.1
3968CHINA MERCHANTS BANK LTD H1.1BBB32.8
2010SAUDI BASIC INDUSTRIES1.0BBB27.9
HINDUNILVRHINDUSTAN UNILEVER LTD0.9A25.9
35720KAKAO CORP0.9BBB28.4
YUMCYUM CHINA HOLDINGS INC0.8BBB23.4

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:

Fossilfuelfunds ratings for DMXF, ESGD, USXF and ESGU
Comparing iShares ESG Advanced and ESG Aware
Source: FossilFreeFunds.org

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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 an 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 decisions.

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Categories: ESG

Fernando

Fernando created Your Green Wealth to help investors find sustainable investing options. When not writing for Your Green Wealth, he is a business developer for renewable energy projects.

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

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