INVESTORS’
TOP 5 ESG
CHALLENGES

A tectonic shift to sustainable comes with challenges for investors. Here’s how iShares, in partnership with BlackRock, can help.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

A TECTONIC SHIFT TO SUSTAINABLE…

We are in the midst of a tectonic shift towards sustainable investing, with EMEA investors anticipating nearly 50% of their AUM to be in sustainable by 2025, compared with 21% in 20201. This fundamental reallocation of capital towards sustainable assets is gaining momentum. In 2020 there were net inflows of USD 425B into sustainable assets globally. In H1 2021 we have already seen USD 353B2.

…COMES WITH CHALLENGES FOR INVESTORS

We recognise there are complexities with sustainable investing and know there is no one-size-fits-all approach. After conducting over 100 client interviews3, we identified 5 challenges and investor needs:

  • PORTFOLIO CONSTRUCTION: Building a sustainable portfolio tailored to specific requirements can be time-consuming and the impact on investment returns is unclear. Investors need a partner to aid in this transition.
  • ESG DATA: Sustainable data, metrics and calculations vary per provider and interpretation differs. Investors need to quantify the measurable sustainable output of their investments.
  • PRODUCT SELECTION: 48 sustainable ETFs were launched industry wide in Europe alone in 2021 with myriad methodologies4. Investors want an easier way of navigating sustainable product ranges.
  • INCORPORATING CLIMATE: Climate has become an emerging focus. Investors want help integrating climate considerations into their sustainable portfolios.
  • COMPANY ENGAGEMENT: When investing sustainably investors want a fund provider with strong stewardship capabilities to have long-term engagement with companies.

5 ESG CHALLENGES AND HOW iSHARES CAN HELP

Backed by BlackRock, iShares is the investment partner who can help you make the sustainable transition with indexing, in the following ways:












CHALLENGE

How do I transition to a sustainable portfolio and measure the impact on my overall financial and sustainable outcomes?

HOW iSHARES CAN HELP

Investors need a fund provider dedicated to helping investors transition their portfolios to sustainable. When you invest with iShares, you get access to the broader added value, experience and expertise of BlackRock, as we have evolved our business to meet the growing need for sustainable portfolios.

A PARTNER IN HOLISTIC SUSTAINABLE PORTFOLIO CONSTRUCTION

Whether you are looking to evaluate, evolve or start building a sustainable portfolio, when you invest with iShares, BlackRock can help. From providing investment strategy and consultations on portfolio construction to offering model portfolio solutions, trading strategies and transition management.

EVALUATE, EVOLVE & BUILD SUSTAINABLE PORTFOLIOS

Over the last 2 years, the BlackRock Portfolio Analysis and Solutions team (BPAS) has analysed over 1,400 client portfolios, covering USD 500B in AUM across Europe and designed 450 investment solutions for our clients5. Throughout this period, we have seen a significant increase in ESG-focused engagements and solutions. Sustainable increased from just 15% of our total consultations in H1 2019, to 24% in H1 2020 and all the way to 57% in H1 20216.

A 280% increase in ESG-focused engagement

A 280% increase in ESG-focused BPAS client engagements over the past 2 years.

Source: BlackRock Portfolio Analysis and Solutions (EMEA) as of 30 June 2021.


BPAS CAN HELP:

  • EVALUATE your portfolio’s holistic sustainability profile using ESG data to show your ESG Quality Score, Carbon Emissions Intensity, Low Carbon Transition metrics and exposure to Business Involvement areas. Get a panoramic view of your portfolio’s risk drivers and sustainable characteristics backed by BlackRock’s risk and portfolio management platform Aladdin®.
  • EVOLVE your portfolio’s sustainability metrics with product substitutions, using alpha-seeking, factor and index sustainable funds. Compare the resulting sustainable portfolio with your original allocations in terms of sustainability metrics, risk drivers, historical performance and costs. Based on your specific risk, return and sustainability requirements, you can transform your existing strategic asset allocation to improve its sustainable features.
  • BUILD a sustainable proposition, based on your sustainability objectives. Design your strategic asset allocation with the help of BlackRock’s climate-aware capital market assumptions and various portfolio implementation options across alpha-seeking, factor and index. Replicate a non-sustainable benchmark or fund with sustainable building blocks.
Ursula Marchioni, EMEA Head of BPAS

ACCESS READY-MADE SUSTAINABLE PORTFOLIOS

Our BlackRock Multi-Asset Portfolio ESG ETFs seek to invest by having at least 80% of their assets in ETFs tracking indices that meet certain ESG criteria. We have products across Conservative, Moderate and Growth risk profiles, all built with iShares ETF building blocks. These funds are diversified, risk-managed and cost-effective and use BlackRock’s climate-aware capital market assumptions  to help inform the portfolio construction process.

The funds can hold ETFs from iShares’ ESG Screened, ESG Enhanced and SRI product ranges. Under the hood, these products are managed by our Model Portfolio Solutions team who can leverage BlackRock’s scale, size and expertise to make asset allocation decisions based on considered assumptions of risk and return. Our portfolio managers are also consistently tracking the availability of new approaches to sustainable and building blocks, including impact, thematic and Paris-Aligned Benchmark (PAB) indices.

BlackRock’s Model Portfolio Solutions team also offer model portfolios and also tailored solutions – find out more here.

SUSTAINABLE IMPLEMENTATION

When you have determined the sustainable approach that works for you, BlackRock’s Transition Management team (TRIM) can help manage the implementation of your transition to a sustainable portfolio.

All these options can incorporate iShares ETFs, building blocks that bring transparency, liquidity and lower costs with instant access to sustainable investing.

CHALLENGE

How do I find and interpret ESG data to assess a sustainable fund?

HOW iSHARES CAN HELP

When investing sustainably, we believe investors need to know what they own and be able to quantify the measurable output of their investments. iShares takes a robust, rigorous approach to assess the quality and accuracy of ESG data across the benchmark indices that our new and existing products track.

TRANSPARENCY, CONSISTENCY…

In 2020, BlackRock added 1,200 sustainability metrics to Aladdin®, our risk and portfolio management system, and established data partnerships with Sustainalytics, Refinitiv and Rhodium to understand ESG and physical climate risks7. This data feeds into both our risk management platform and our full investment process - from research, to portfolio construction, modelling and risk management and reporting. Our Risk and Quantitative Analysis team can use Aladdin® ESG data to monitor indexed funds relative to their benchmarks from an ESG perspective.

Risk: While proprietary technology platforms may help manage risk, risk cannot be eliminated.

We are committed to providing transparency, so you can find aggregated ESG data for each fund in our iShares sustainable ETF range on iShares.com and compare our ETFs on this basis.

Samantha Tortora, Global Head of Aladdin Sustainability at BlackRock

…AND SUSTAINABLE EXPERTISE

BlackRock’s portfolio management team use ESG data in Aladdin® to assess holdings in our sustainable products at the issuer level, monitoring how this has changed and anticipating future evolutions to the indices we track. Aladdin® also allows us to interpret this ESG data and the historical impact on the performance of iShares ETFs’ alongside traditional risk/return drivers. We can show historically how an iShares sustainable fund impacts both investment and sustainable outcomes.

Across BlackRock we are dedicated to analysing and interpreting ESG data - working with data providers to improve these metrics, offering you transparency to access and understand this data and driving a push for standardisation across the industry to bring consistency and transparency to all investors.

Risk: The environmental, social and governance (“ESG”) considerations discussed herein may affect an investment team’s decision to invest in certain companies or industries from time to time. Results may differ from portfolios that do not apply similar ESG considerations to their investment process.

1,200 sustainability metrics added to Aladdin in 2020

1,200 sustainability metrics added to Aladdin in 2020 to understand ESG and physical climate risks.

Source: BlackRock Portfolio Analysis and Solutions (EMEA) from 1 January 2019 – 31 December 2020.


CHALLENGE

With so many sustainable products, how do I find the sustainable fund that meets my needs?

HOW iSHARES CAN HELP

Investors need clarity, choice and - most importantly - quality. With 48 sustainable ETFs launched industry wide in Europe alone in 2021 with myriad methodologies, there are so many products to consider8. iShares can help investors navigate the sustainable landscape and select products that meet their financial and sustainable investments goals.

CLARITY NAVIGATING SUSTAINABLE OPTIONS

We know investors need clarity when choosing a sustainable product, so we want to help. Investors can navigate to iShares ETF and index products that align with their investment and sustainable goals using BlackRock’s Sustainable Investing framework. This framework classifies iShares ETFs and index products according to four sustainable approaches.

Choose from a full range of sustainable building blocks across asset classes and sustainable approaches, select the suite that meets your needs and implement across your portfolio.

Icon Screened Funds

Screened

Funds that seek to track indices that eliminate exposure to certain business areas.

Icon ESG Broad Funds

ESG Broad

Funds with an explicit ESG objective, which may include a targeted quantifiable ESG outcome.

Icon ESG Thematic Funds

ESG Thematic

Funds that focus on a particular Environmental, Social, or Governance theme.

Icon Impact Funds

Impact

Funds that seek to generate a measurable sustainable outcome, alongside a financial return.

CHOICE, WITH THE LARGEST, MOST COMPREHENSIVE RANGE

iShares gives you choice, we have more sustainable ETFs registered on more European stock exchanges than any other provider and we manage USD 50B in AUM across 55 ETFs in Europe9. We offer the ability to scale a consistent approach across the whole portfolio with sustainable indexing alternatives in equities and fixed income across all sectors of the market from screened exposures to impact investing. These include 48 Article 8 and 4 Article 9 products10.

Manuela Sperandeo, EMEA Head of Sustainable Indexing

INVESTORS NEED QUALITY PRODUCTS

Investors want quality products, built to evolve with new regulation and the fast-changing sustainable investing landscape. iShares sustainable ETFs are built with the same expertise, rigour and high standards as all our iShares products.

What’s under the hood matters. iShares sustainable ETFs are managed by global teams of over 60 equity and over 70 fixed income BlackRock portfolio managers11. At BlackRock, sustainability has been integrated into our investment process so our portfolio managers are sustainability experts, using the power of Aladdin®, BlackRock’s global risk management platform to analyse funds across many investment risk factors and sustainable considerations.

130 portfolio managers design and manage our sustainable ETFs

130 portfolio managers’ combined experience and expertise goes into designing and managing our sustainable ETFs.

Source: BlackRock, as of 30 June 2021.


At iShares, we consistently engage and advocate globally with leading index providers on behalf of our clients. We do this to develop new innovative indices and enhance existing exposures as part of our firmwide commitment. Our sustainable investing approach is dynamic, and we continue to innovate to reflect evolution in sustainable indexing, changing regulations and feedback and insights from our clients.

Looking ahead is imperative. As sustainable investing goes mainstream, iShares is also investing in the sustainable ETF ecosystem We are working with stock exchanges and market makers to develop sustainable ETF options, sustainable indexed futures and the sustainable ETF lending market.

CHALLENGE

How do I incorporate climate into my portfolio and measure the impact?

HOW iSHARES CAN HELP

The sea change towards sustainable investing is moving fast. As new trends start to emerge it can be difficult to know how to start incorporating these trends into your sustainable portfolio. iShares is your partner here, offering products that enable you to incorporate climate considerations into your portfolio.

CLIMATE: AN EMERGING TREND

In 2020 alone, natural disasters led to an estimated USD 120B in damages, the highest ever recorded12. Reshaping the global economy to meet the climate threat will have major financial ramifications. With the number of companies disclosing on climate change almost doubling in the last 5 years13, this is an emerging trend that we believe is here to stay, so iShares is innovating in climate investing. At BlackRock we believe that climate risk is investment risk. In 2021 we committed to offering our clients a full set of climate-oriented investment options, including ETFs.

Natural disasters led to USD 120B damages in 2020

In 2020 alone, natural disasters led to an estimated USD 120B in damages, the highest ever recorded.

Source: Munich Re NatCatService database (as of 30 March 2021).


WAYS TO ACCESS CLIMATE INVESTING

From broad building blocks to targeted exposures, iShares now has three approaches to climate investing to help you navigate our range and select the climate option for you.

Climate investing framework

For illustrative purposes only. The above list is not exhaustive but represents various ways investors can take specific climate objectives into consideration.


Find out more about integrating climate into portfolios with ETFs.

ALIGNING WITH THE EU PARIS ALIGNED BENCHMARK

For investors who have made a net zero commitment, looking to transition to a low-carbon economy or align their portfolios to the EU’s Paris Aligned Benchmark (PAB) regulation, iShares launched a range of Paris-Aligned Climate ETFs in 2021.

These ETFs offer building blocks to switch to climate investing across developed market equity exposures.

BlackRock Portfolio Analysis and Solutions team (BPAS) can help you evolve, evaluate and build a climate portfolio to meet your sustainable investment needs.

CHALLENGE

How can I ensure my sustainable fund provider is driving long-term value through engagement with companies?

HOW iSHARES CAN HELP

BlackRock provides a voice to help drive long-term value through company engagement. We are a focused steward working on behalf of our clients to advocate for sound corporate governance and business models that can help drive sustainable, long-term financial returns.

GLOBAL REACH AND LOCAL PRESENCE MATTERS

BlackRock has one of the largest and most diverse global investment stewardship teams in the industry14. We operate across ten offices globally and engage locally with companies, enabling more frequent and better-informed dialogue, often in local language. BlackRock was founded on the core premise of understanding investment risk and thinking into the future for our clients. We believe climate risk is investment risk and we have built our team to support engagement with companies, big and small and at all stages of their sustainability integration journey, to help enhance the financial resilience of our clients’ long-term investments.

 World map

OUR TEAM, BY THE NUMBERS

Number 10

offices

Number 71

voting markets

Number 65 plus

member team

Source: BlackRock, as of August 1, 2021

LONG-TERM VALUE FOR INVESTORS

Index investing can drive long term value for investors, with index funds typically remaining invested in a stock for as long as it remains in an underlying index – often many years. With 90% of the listed equities BlackRock manages on behalf of clients in index funds, BlackRock’s Investment Stewardship team is particularly important for our client’s index holdings, in which we are essentially permanent shareholders. We cover almost every corner of the investment universe in our indexing range across the globe15.

Sandy Boss, Global Head of Investment Stewardship

ENGAGEMENT, VOTING, AND TRANSPARENCY

During the 2020-2021 proxy year, BlackRock’s engagements with investee companies hit a new record. We held more than 3,650 unique engagements with over 2,326 companies across 71 country markets. We held over 2,300 engagements on climate, voted against 319 companies on climate risk related concerns (about 2% of companies globally), and supported 64% of the environmental shareholder proposals voted16.

Our Investment Stewardship toolkit

  • Engaging with companies: how we build our understanding of a company’s approach to governance and sustainable business models, and how we communicate our views and ensure companies understand our expectations.
  • Voting in our clients’ interest: how we signal our support for or raise our concerns over a company’s corporate governance or business operations. Where we have concerns, we may vote against directors or other management proposals, or in support of a shareholder proposal. We employ votes against directors more frequently since that is a globally available signal of concern.
  • Transparency in our activities: how stakeholders are informed on our work to advance the long-term economic interests of our clients. We continue to raise the bar on our transparency with the publication of comprehensive reports, our voting record, and through our regularly updated vote bulletin library.

Find out more about BlackRock’s Stewardship team and how the team voted at various shareholder meetings.

VOTING STATISTICS

Number 3650+

Unique engagements

35 percent

Supported shareholder proposals (297 out of 843)

42 percent

Shareholder meetings we voted against management*

Source: BlackRock, Institutional Shareholder Services (ISS). Data as of July 8, 2021. Sourced on July 8, 2021, reflecting data July 1, 2020 through June 30, 2021.
*Includes abstentions and reflects percentage of shareholder meetings where we voted against management on one or more proposals. See “Pursuing long-term value for our clients.”