BlackRock launched two active sustainable ETFs this Thursday for the transition to a low-carbon economy. The two funds raised more than $1.5 billion, highlighting the increased focus on climate-aware strategies from global institutional investors. The BlackRock U.S. Carbon Transition Readiness ETF (LCTU) and the BlackRock World ex U.S. Carbon Transition Readiness ETF (LCTD) invest in large- and mid-cap companies, tilting toward those companies that BlackRock believes are better positioned to benefit from the transition to a low-carbon economy. The day-one investments into LCTU make it the largest ETF launch ever.
“The energy transition is central to all companies’ growth. Winners and losers will emerge in every sector based on each company’s ability to adapt, innovate and pivot their strategies toward the low-carbon economy,” said Larry Fink, Chairman and CEO of BlackRock. “Many of our clients share this conviction and we are helping them be at the forefront of the energy transition through next generation climate analytics and sustainable strategies. We believe that this combination will lead to better outcomes for them and society as a whole.”
The new ETFs seek to outperform their benchmarks over the long term by investing in companies that may be better positioned for the transition to the low-carbon economy. To capitalize on the energy transition, BlackRock’s Sustainable Investing unit developed and managed a proprietary strategy with institutional investors since 2018. The funds leverage a range of structured and unstructured data sources, advanced analytics and research-driven insights across five “pillars” (Fossil Fuels, Clean Technology, Energy Management, Waste Management, and Water Management) to derive a unique low-carbon economy transition readiness score for each company. For the two new funds, BlackRock systematically overweights or underweights individual companies relative to a benchmark based on their low-carbon economy transition readiness score. LCTU is benchmarked to the Russell 1000 Index and LCTD is benchmarked to the MSCI World ex USA Index.
Investors Leading the Transition
A consortium of global institutions invested in the funds, including the California State Teachers’ Retirement System (CalSTRS), Temasek, Sura Asset Management, Varma Mutual Pension Insurance Company, Profuturo Group, FM Global and RenaissanceRe. More than $1.2 billion flowed into LCTU making it the largest ETF launch of all time. Additionally, approximately $500 million was invested in LCTD, making it one of the largest ETF launches in history.
“Our allocation to this strategy furthers CalSTRS’s goal to position our portfolios for the low-carbon transition,” said Chris Ailman, Chief Investment Officer at CalSTRS. “Identifying and supporting opportunities that move CalSTRS and the global economy to a low-carbon future helps ensure we can continue to provide a secure retirement for California’s educators.”
“Better data and analytics have catalyzed climate investing. We are at a pivotal moment in the history of investing and it is now essential to incorporate climate risks and opportunities into asset allocations and portfolio management,” said Timo Sallinen, Head of Listed Securities, Varma Mutual Pension Insurance Company.
“Our purpose is to obtain the highest possible pensions for our clients, but we also are committed to the conservation of the environment and the fight against the effects of climate change so that we can all live in a more sustainable world. We firmly believe that these vehicles will help us achieve our goals,” said Juan Pablo Noziglia, CIO, Profuturo AFP.
Kevin O’Donnell, President & CEO of RenaissanceRe said, “As a global reinsurer, we are uniquely aware of the long-term risks of climate change due to our central role in protecting communities from its impact. Investing in transition-ready companies furthers our leadership in risk management, while advancing the sustainability of our own investment portfolio.”
“At FM Global, we’re committed to advancing global resilience to climate change and natural catastrophe risks. We are also committed to investing in strategies and companies focused on the energy transition, reducing the carbon footprint, and dedicating capital and talent towards developing breakthrough solutions that advance climate resilience. We believe such investments will generate positively differentiated returns, strengthening our long-term stability and profitability. As a commercial property insurer, this strategy aligns well with our efforts to put our capital to work to help increase the resilience of our clients and collective communities,” said Sanjay Chawla, Senior Vice President and Chief Investment Officer, FM Global.
Taking Action on Climate Change
In a paper published today, ‘A Sea Change in Global Investing’, BlackRock illuminates how the transition to a low-carbon economy will affect every investor and how successfully navigating the shift will require the nimbleness to embrace new strategies, especially those that consider the threat of disaster, regulations, technological innovations, and shifts in consumer preferences.
“Leading global institutions recognize that climate risk is investment risk, and they are increasingly using ETFs as transparent and efficient vehicles to integrate this insight into their portfolios,” said Salim Ramji, Global Head of ETF and Index Investments at BlackRock. “These ETFs provide an accessible way for millions of investors to invest in the climate transition for the long term and potentially benefit from this tectonic shift.”
BlackRock has taken action to advance sustainable analytics and data quality with new tools and partnerships with leading data providers. Last year BlackRock launched Aladdin Climate as the first software application for investors to measure both the physical risk of climate change and the transition risk to a low-carbon economy on portfolios with climate-adjusted security valuations and risk metrics. BlackRock also expanded and strengthened its data offerings with 1,200 new sustainability metrics through partnerships with Sustainalytics, Refinitiv, Rhodium and Clarity AI.
BlackRock manages a broad array of sustainable investment strategies, including many new sustainable solutions added in the past year across active, index, and alternative asset classes. BlackRock believes there are three approaches to climate-oriented strategies that help investors, which are to Reduce exposure to carbon emissions or fossil fuels, to Prioritize companies based on climate opportunities and risks or to Target key themes or asset classes. BlackRock’s latest carbon transition ETFs fit into the framework, helping investors prioritize investments in companies that may be better positioned to benefit from the transition to a low carbon economy.
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