The world’s largest investment manager, BlackRock, issued a client bulletin outlining its approach to companies that manufacture and sell civilian firearms in early March.
The firm explains that in that bulletin, they committed to addressing the issue of firearms companies held in index portfolios in two ways, either offering their clients more choice of products that exclude firearms manufacturers and/or retailers, and secondly, as a fiduciary, engaging with firearms manufacturers and retailers in which their clients are invested, regarding business policies and practices connected with the production and sale of firearms.
The firm has now, in response to client interest, decided to enhance its Environmental, Social and Governance (ESG) and other index product offerings to provide more choice for clients seeking to exclude firearms companies from their portfolios.
The new steps include extending the lineup of ESG ETFs with two new funds that include screens to exclude civilian firearms. BlackRock writes that it expects to launch a new small cap ESG ETF, the iShares MSCI USA Small-Cap ESG Optimized ETF (ESML) this week.
This ETF will seek to track the investment results of the MSCI USA Small Cap Extended ESG Focus Index, which is composed of small-cap US companies that have favourable ESG characteristics, and also will exclude all producers and large retailers of civilian firearms.
The firm writes that ESML is designed to exhibit risk and return characteristics similar to those of the MSCI USA Small Cap Index.
The second launch is the iShares ESG US Aggregate Bond ETF. This proposed ETF will be based on a new index by Bloomberg Barclays, with ESG rating inputs from MSCI ESG Research, and that excludes all producers and large retailers of civilian firearms. The underlying index that this ETF will seek to track is an optimised fixed-income index designed to reflect the performance of US dollar denominated investment-grade bonds issued by companies evaluated for favourable ESG characteristics, while exhibiting risk and return characteristics similar to those of the Bloomberg Barclays US Aggregate Bond Index.
The firm writes that, subject to regulatory review, this product is anticipated to launch later this year.
BlackRock is also committed to offering a new line of products that are exclusively firearm-free available to certain institutional investors, including qualified US pension plans such as 401(k) plans.
The firm writes that, based on client demand, BlackRock will offer five new strategies seeking to track broad market indexes: S&P 500, Russell 1000, Russell 2000, Russell 3000 and MSCI World ex-US that exclude all producers and large retailers of civilian firearms.
The new strategies are to be offered in pooled funds available to certain institutional investors such as US pension plans seeking firearm-free funds for employee retirement programs such as 401(k) plans.
BlackRock has also announced that for existing broad market ESG equity and bond index ETFs, they will be changing their underlying index to indexes which include explicit screens for civilian firearms manufacturers and large retailers.
The firm writes that while these funds historically have included little exposure to firearms manufacturers, the new screen will expressly prohibit all manufacturers of civilian firearms. The screen excludes from the fund retailers of civilian firearms if they earn 5 per cent or more in revenue, or more than USD20 million in revenue, from civilian firearms-related products. These screens will apply to iShares existing ESG products (tickers: SUSA, ESGU, ESGD, ESGE, SUSB and SUSC).
BlackRock is making its flagship iShares ESG ETFs, DSI and SUSA more accessible to investors by reducing the net expense ratio from 50 basis points (bps) to 25bps.
DSI, which seeks to track the first socially responsible index, MSCI KLD 400 Social Index, and SUSA, which is also composed of US companies that have positive ESG characteristics, both have explicit firearms producer and revenue-based retailer screens.
BlackRock writes that it manages money for a diverse set of investors, including pension plans, insurers and individual investors, who have a wide range of views on firearms.
“It is ultimately our clients’ choice about the types of funds they invest in. It is our privilege to serve them, and we will continue to engage with all of our clients to understand their needs and preferences so that we can effectively meet their investment objectives,” the firm says.