BlackRock is moving faster to remove companies with poor ESG standards from some of its iShares exchange-traded funds.
The asset manager's "fast-exit" rule that went into effect in December applies to its European listed ESG ETFs that use MSCI custom indices. Those indices cover 41 products and $70.5 billion in assets, a spokesman said. Removal could happen in 45 days, roughly half the previous time.
A company could face removal by MSCI if its MSCI ESG Controversies score drops to zero or if the index provider considers it in violation of the United Nations Global Compact. MSCI will review companies for exclusion on a monthly basis, the spokesman said.
The change was prompted by conversations with German wealth managers who told BlackRock that they wanted faster removal of companies with the most controversial ESG issues, the spokesman said.
In February 2023, MSCI also shortened the time frame for dealing with companies in the MSCI ESG Screened indexes ETF series, which covers six funds and $15 billion in assets.
After months of consulting with market participants on how to improve those ETFs' ESG credentials to reflect regulatory developments in Europe, MSCI also made several other changes. It added a carbon intensity reduction of 30% compared to the parent index, and excluded companies that generate 5% of their revenue from the production or distribution of palm oil or extraction of arctic oil and gas.
Companies with an MSCI ESG Controversy score of one, out of a possible nine, in land use and biodiversity or supply chain management will also be excluded, MSCI said in February.
The faster time frames for removing companies with questionable ESG practices reflect the changing nature of index investing in light of ESG concerns."The industry is moving away from the concept of index investing being passive," said Manuela Sperandeo, head of sustainable indexing for BlackRock in London.