BlackRock is launching a new suite of ETFs to capture a red hot market that could grow to $400 billion by 2028

Reuters

Larry Fink, BlackRock CEO

• BlackRock projects that sustainable ETF assets will grow from $25 billion today to over $400 billion by 2029.
• The asset manager is trying to capture some of this expansion with a new product launch and plans for greater ESG transparency, even for investments not branded as sustainable.

BlackRock has already publicly bet on the explosive growth of the ETF world. Now, the world's biggest asset manager is pushing sustainable ETFs to capture growing interest in a market it forecasts will hit $400 billion in a decade.

On Tuesday, the firm introduced a line of ETFs focused on sustainable investing, iShares Sustainable Core. The core products complement iShares' existing ETFs, including those focused on low carbon, sustainable impact, and a product that tracks the longest-running ESG index.

The new set of seven products for the US and six for Europe could replace the broad core index-based ETFs that often comprise the basis of retail and institutional investors' portfolios. In the US, these sustainable funds are focused on corporate bonds, various MSCI indices and other exposures.

The products come as BlackRock anticipates huge growth in the space, forecasting that ESG-focused ETF assets will increase from $25 billion today to more than $400 billion by 2028. Millennials and women in particular are leading retail investors' interest in ESG, said Lule Demmissie, TD Ameritrade's managing director of investment products and guidance. These types of investments provide exposure to companies with positive environmental, sustainable and governance factors. They also screen out companies involved with tobacco, controversial weapons, civilian firearms and severe business controversies.

At a Tuesday press briefing, Demmissie explained that despite differences in investors' ESG interest, the investment strategy is starting to become "identity-agnostic." Investors of all stripes are increasingly seeking to invest in companies that work to incrementally improve their ESG profiles, leading firms like TD Ameritrade to offer sustainable investing options through BlackRock's iShares, robo advisers and other strategies.

The iShares website now shows ESG and carbon efficiency metrics for each ESG ETF, along with traditional portfolio data. By the first quarter of 2019, those metrics will be included for all iShares ETFs, including non-ESG products. Carolyn Weinberg, BlackRock's head of product of iShares and index investments, said the data points will help investors understand their full portfolios through an ESG lens.

The firm is also launching an ESG portfolio analyzer for financial advisors and institutional clients to help investors understand ESG risks and opportunities.

Martin Ross, the US head of iShares, said sustainable ETFs previously were limited to particular causes, such as companies that invest in clean water or those that exhibit gender diversity in leadership.

"It's difficult to build an entire portfolio around niche," he said at Tuesday's press briefing. ESG came up "in every client conversation," particularly around core products. Despite investors' interest in ESG products that mimic a classic portfolio, weighted 60% in stocks and 40% in bonds, no firms offered such products. That led BlackRock to create the core-focused suite of iShares ETFs.

BlackRock is far from the only manager seeking to tap growing ESG interest. On Tuesday, Ethic, a New York-based sustainable asset management platform backed by a Rockefeller investor, raised its first round of funding.

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