BlackRock, SGX launch climate action ETF at local equity record of US$426 million
Uma Devi
ASSET manager BlackRock teamed up with the Singapore Exchange (SGX) and MSCI on Thursday (Sep 14) to list a US$426 million exchange traded fund (ETF).
This is the largest equity amount for an ETF launched in the city-state.
The fund tracks the MSCI Asia ex-Japan Climate Action Index, which is part of the suite of MSCI Climate Action Indexes launched at the end of last year.
It is designed to represent the performance of companies that lead their sectors in terms of their positioning and actions for making a climate transition.
This is the third iShares ETF climate building block that tracks the MSCI Climate Action Indexes, coming three months after launches in the US and Japan.
The fund is managed by BlackRock, with Prudential as an anchor investor. Other seed investors include Singlife and Temasek.
The MSCI Asia ex-Japan Climate Action Index has 605 constituents, with an average weightage of 0.17 per cent and a maximum weightage of 5.52 per cent. DBS is the only Singapore counter among the top 10 constituents, with a weightage of 1.27 per cent.
Consumer discretionary, information technology and financials have the highest weightage by sector in the MSCI Asia ex-Japan Climate Action Index; China, India and Taiwan are among the top countries represented.
In an interview with The Business Times, BlackRock’s head of iShares and index investments for the Asia-Pacific, Peter Loehnert, noted that Singapore is playing “an outsized role” in global climate leadership.
“Some of the largest and most sophisticated asset owners are domiciled in Singapore, and they are very much leading the charge on this topic,” he said.
Loehnert added that the fund is “one major building block” in building an ecosystem for a sustainable economy.
Although the iShares MSCI Asia ex-Japan Climate Action ETF focuses on sustainability, the fund does not ignore sectors that typically fall under the “brown energy” category. Sectors like energy, industrials and utilities also feature in the fund. Loehnert said that this “non-exclusive” strategy aims to “create an incentive” for companies to try their best to be sustainable, and rewards companies that are a step ahead.
“It will be very easy to just exclude all sorts of companies, but it’s much more powerful to give everyone the opportunity to get on the journey, and then get incentivised by capital flows,” he added.
Emily Woodland, head of sustainable and transition solutions for the Asia-Pacific at BlackRock, said ETFs provide investors with a “core replacement option” across a significant proportion of a portfolio that might be sitting in public markets.
“You can provide sustainable ETFs that allow for clients to switch into options that are better tilted or better positioned for transition-related factors,” she said. “That’s certainly a trend that we’re seeing among our clients across the region.”
ETFs are expected to gather steam in terms of listings and demand, even as capital markets struggle with volatility.
SGX’s head of product strategy and business development for equity markets Laurent Poirot described ETFs as an area of growth for the bourse, with sustainability likely to feature heavily in investor sentiments.
“The reality is that an investor today needs a blend of solutions and a blend of asset classes,” he said, noting that this can range from equities to fixed income.
“The key here is to have enough solutions available for investors. So depending on how far they are in their journey of transition investing for their portfolios, they can have access to the right solutions,” he added.
BlackRock’s Loehnert said South-east Asia is at a “tipping point” of a wave of ETF adoption; markets can also expect an outsized growth in ETF markets across Asia – driven by both institutional and retail investors.
“No matter which market you look at, the growth rates of ETFs are phenomenal,” he said. Although the bulk of interest in ETFs has typically come from institutional investors, he noted that more investors are now “self-directed” and “voting with their feet”. These investors are now buying ETFs because they are transparent, affordable and accessible, he added.
