BlackRock climate vow pays off with ETF’s $600-million debut

BlackRock Inc.’s climate pledge is already paying off.

An exchange-traded fund from the New York money manager has attracted more than $600 million this week, despite only starting trading on Friday, data compiled by Bloomberg show. That’s the best debut for any U.S. ETF this year, and a sign BlackRock isn’t the only one that sees climate change as a defining factor in companies’ long-term prospects.

Investing in companies that care about environmental, social and governance issues — nicknamed ESG issues — is now catching on after years of sluggish growth. Although only a small drop in the $4.5-trillion U.S. ETF market, sustainable funds added more than $8 billion in 2019, and assets recently topped $20 billion. BlackRock runs multiple funds that stand to benefit from this shift, and has said that it will look to double sustainable ETF offerings to 150.

“This is likely just the beginning of the wave of money going into ESG ETFs,” said Todd Rosenbluth, CFRA Research’s New York-based director of ETF research. “It will become more mainstream, and as these products gain scale, they’ll hit the radar for the wealth-management market.”

BlackRock said Wednesday that the $600-million investment in its iShares ESG MSCI EM Leaders ETF came from Ilmarinen, Finland’s oldest pension company.

The Helsinki firm also poured cash into two similar funds shortly after they began trading last year. It had more than $3 billion invested across the iShares ESG MSCI USA Leaders ETF and the Xtrackers MSCI USA ESG Leaders Equity ETF as of Sept. 30, data compiled by Bloomberg show.

LDEM tracks the MSCI EM Extended ESG Leaders 5% Issuer Capped Index, which contains large and mid-cap emerging-market stocks that meet high ESG credentials.

It’s not the only new ESG fund this year. Last week, Direxion started an ETF that enables investors to bet against companies that score low on certain ESG criteria. The strategy shorts the worst offenders, while upping its exposure to those with the best ratings.

Meanwhile, BlackRock plans to start three new ETFs that screen for fossil fuels, it announced Wednesday.

Ballentine and Gupta write for Bloomberg.