The Top Seven BlackRock (iShares) ESG ETFs
Environmental, social, and governance (ESG) funds seek to invest in companies that do better on things like carbon emissions and shareholder rights. BlackRock is a big proponent of investing with ESG in mind. The firm’s iShares family of exchange-traded funds (ETFs) offers 30 socially responsible funds. We’ve highlighted seven ESG funds for you.
SustainFi September 29, 2021
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Socially responsible investing with BlackRock
Founded in 1988 by Larry Fink, BlackRock is the world’s largest asset management firm with over $9 trillion in assets. With a lineup of thirty ESG funds (for U.S.-based investors), BlackRock is the number one manager of socially responsible assets.
According to Morningstar, the firm managed nearly $59 billion in ESG funds in June 2021. The firm is actively pushing sustainable products with financial advisors, going as far as to replace conventional, non-ESG funds with sustainable investments in model portfolios that advisors use for clients.
Is Blackrock socially responsible?
BlackRock’s founder and CEO, Larry Fink, was one of the first prominent asset manager CEOs to emphasize the importance of climate change and ESG issues in investing. His 2021 annual letter focuses on the climate transition and ESG.
In the 2021 CEO letter, Larry Fink argues that “climate risk is investment risk” and that the “climate transition presents a historic investment opportunity.”
The Paris Agreement, which aims to limit global warming to under 2 degrees Celsius by the end of the century, requires that carbon emissions drop to net zero by 2050. Yet, Fink argues, the carbon intensity of large stock market indexes like the S&P 500 implies global warming “trajectories substantially over 3 degrees Celsius.”
BlackRock is already carbon neutral in its operations and is supporting the net zero by 2050 goal.
In spite of this, BlackRock has been criticized for not doing enough on climate. Tariq Fancy, BlackRock’s former head of ESG investing, argues that ESG funds are a “distraction.” And BlackRock’s voting record on environmental issues as a shareholder has also been questioned. However, it materially improved during the 2021 proxy season, when BlackRock supported hedge fund Engine No. 1’s push to add three directors to the board of the oil giant Exxon.
How many ESG funds does BlackRock have?
In September 2021, BlackRock had 30 ESG funds marketed to U.S. investors. These funds include broad market ESG funds, thematic funds (like clean energy funds), screened funds, and an impact fund, which invests in green bonds.
BlackRock divides its sustainable funds into four categories:
- Broad ESG. Most iShares ESG funds fall into this category. The funds invest more in stocks with better ESG scores (defined by the agency MSCI) and less in shares with low ESG scores
Many BlackRock ESG funds are designed to perform close to the broad market, with minor changes to improve the fund’s scores on issues like climate and shareholder rights. This makes the funds suitable for most investors, but some argue that the exclusions in the most popular iShares ESG funds don’t go far enough. (The largest iShares funds like ESGU continue to invest in oil and gas companies, for example.)
In response, BlackRock has introduced funds with more stringent screens. Newer iShares ESG funds in the Advanced ESG lineup like USXF and DMXF are fossil free.
- Thematic. Thematic funds embrace various ESG themes like clean energy (ICLN), low carbon (CRBN), or the UN Sustainable Development Goals (SDG)
- Screened. BlackRock’s three screened funds (XVV, XJH, and XJR) exclude certain business areas, like weapons, tobacco, oil sands and shale energy, thermal coal, and fossil fuel reserves
- Impact. BlackRock has one green bond fund, BGRN (see below), which includes bonds funding environmentally beneficial projects
Top Seven Blackrock ESG Funds
We picked seven iShares funds, including five broad market fossil free funds with advanced ESG screens and two funds that target clean energy projects and companies.
BlackRock discloses fund characteristics on the iShares page, where you can see ESG ratings and even carbon emissions for each fund.
|Fund||Investments||Expense Ratio||Assets ($m)||2021 Performance||% Assets in Fossil Fuels||MSCI ESG Rating||Sustainalytics Rating|
|iShares ESG Advanced MSCI USA ETF (USXF)||U.S. stocks||0.10%||427||22%||0%||AA||5 / 5|
|iShares ESG Advanced MSCI EAFE ETF (DMXF)||Developed market stocks||0.12%||252||12%||0%||AAA||5 / 5|
|iShares ESG Advanced MSCI EM ETF (EMXF)||Emerging market stocks||0.16%||22||9%||0%||AA||4 / 5|
|iShares Global Clean Energy ETF (ICLN)||Clean energy stocks||0.42%||5,868||-17%||26.2%||AAA||4 / 5|
|iShares Global Green Bond ETF (BGRN)||Green bonds||0.25%||238||-1%||0%||AA||5 / 5|
|iShares iBoxx USD High Yield ex Oil & Gas Bond ETF (HYXF)||Corporate bonds||0.35%||120||2%||0%||A||NA|
|iShares ESG Advanced Total USD Bond Market ETF (EUSB)||Bonds||0.13%||456||-1%||0%||AA||NA|
Data as of 8/31/2021
Featured Investing Products
iShares ESG Advanced MSCI USA ETF (USXF)
- U.S. stocks
- Expense ratio: 0.10% ($10 on a $10,000 investment each year)
Launched in mid-2020, USXF is a relatively new fund, but it has already attracted over $400 million in assets. USXF tracks the MSCI USA Choice ESG Screened Index, which includes large and mid-cap U.S. equities with positive ESG ratings. The index excludes fossil fuel companies. Firms involved in nuclear power, genetic engineering, palm oil, private prisons, and predatory lending are also out.
The fund owns over 300 stocks, notably in tech (one-third of assets) and financials. Top holdings are NVIDIA, Visa, and Home Depot. The fund owns no energy and has stellar ESG ratings from MSCI and Sustainalytics to boot.
With a 0.10% expense ratio, USXF is one of the cheapest ESG funds to boot.
iShares ESG Advanced MSCI EAFE ETF (DMXF)
- Foreign (developed markets) stocks
- Expense ratio: 0.12%
Launched in mid-2020, DMXF has grown rapidly and has over $250 million in assets under management. DMXF tracks MSCI EAFE Choice ESG Screened Index, an ESG-screened index of developed market stocks ex-U.S. and Canada.
The ETF screens out fossil fuels, adult entertainment, alcohol, gambling, tobacco, GMO, weapons, nuclear power, firearms, for-profit prisons, and predatory lenders. This fund has high rankings from Fossil Free Funds, MSCI, and Sustainalytics.
DMXF is also cheap for an international ESG fund, with a 0.12% expense ratio.
iShares ESG Advanced MSCI EM ETF (EMXF)
- Emerging markets stocks
- Expense ratio: 0.16%
Launched in October 2020, EMXF is a new ETF with around $20 million in assets. Given sponsorship from BlackRock, the ETF should grow.
EMXF tracks the MSCI Emerging Markets Choice ESG Screened 5% Issuer Capped Index, an index of emerging market equities with positive ESG ratings. EMXF excludes companies tied to fossil fuels and has zero energy exposure. EMXF also excludes controversial activities like nuclear power, GMOs, palm oil, private prisons, and predatory lending.
The fund has around 350 holdings, mostly stocks in Hong Kong, Taiwan, and India. With an expense ratio of only 0.16%, it is one of the cheapest emerging markets ESG funds available.
iShares Global Green Bond ETF (BGRN)
- Green bonds
- Expense ratio: 0.20%
Launched in 2018, BGRN invests in a basket of high quality green bonds. All bonds align with rating agency MSCI’s Green Bond Principles.
Qualifying bonds must fund projects in alternative energy, energy efficiency, pollution prevention and control, sustainable water, green building, or climate adaption.
The companies or countries issuing the bonds must also maintain processes for selecting green projects, managing proceeds, and reporting environmental impact. The bonds do not need to be explicitly labeled as “green,” so long as they meet MSCI’s inclusion criteria.
The fund owns over 600 bonds from global issuers, including the governments of France and Germany. Needless to say, this fund is not invested in weapons, tobacco, thermal coal, or oil sands.
🔔 Learn how to invest in green bonds.
iShares Global Clean Energy ETF (ICLN)
- Clean energy stocks
- Expense ratio: 0.42%
Launched in 2008, ICLN tracks an index of roughly 80 clean energy companies. These companies are in the biofuels, ethanol, geothermal, hydroelectric, solar, and wind industries.
ICLN is a global fund; its top three regions are the U.S. (37% of assets), Denmark (around 16%), and China (8%). ICLN’s top investments are wind power stocks Vestas and Orsted and the home solar company Enphase Energy. ICLN has one of the lowest expense ratios among clean energy ETFs (0.42%).
Although the fund has good ESG ratings from MSCI and Sustainalytics, it got an F from Fossil Free Funds because it owns multiple utility companies. Utilities are among the largest developers of wind and solar energy worldwide. Even utilities that are investing in renewables continue to burn fossil fuels. This is unavoidable during the transition phase, and we do not recommend dismissing ICLN on that basis.
iShares iBoxx USD High Yield ex Oil & Gas Corporate Bond ETF (HYXF)
- Fossil Free, ESG corporate bonds
- Expense ratio: 0.35%
Launched in 2016, HYXF is a fossil free corporate bond ETF. Today, the fund has over $100 million in assets.
HYXF invests in high yield, USD-denominated corporate bonds. It tracks the Bloomberg Barclays MSCI US High Yield Choice ESG Screened Index, which selects issuers with higher ESG ratings. It also excludes any businesses related to fossil fuels, adult entertainment, alcohol, weapons, for-profit prisons, gambling, GMOs, nuclear power, nuclear weapons, palm oil, predatory lending, and tobacco businesses.
The fund’s 30-day yield (interest earned by the average investor in the fund over 30 days) was 3% at the time of the publication of this article.
iShares ESG Advanced Total USD Bond Market ETF (EUSB)
- Fossil free, ESG bonds
- Expense ratio: 0.12%
Launched in June 2020, EUSB invests in USD-denominated government and corporate bonds with high credit quality.
Companies with high ESG scores are emphasized. On top of that, many controversial sectors are excluded. EUSB excludes civilian firearms, controversial weapons, tobacco, thermal coal, oil sands, adult entertainment, alcohol, guns, for-profit prisons, fossil fuels, gambling, GMOs, nuclear power, nuclear weapons, palm oil, and predatory lending.
The fund’s 30-day yield (interest earned by the average investor in the fund over 30 days) was 1.15% at the time of the publication of this article.
🔔 Learn about ESG funds from Vanguard.