iShares ESG MSCI USA Leaders ETF: SUSL

overall Rating:

1.42

planets

Sam Barrie
4/18/2021
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BlackRock Inc. is an investment management corporation and is the largest asset manager in the world with $8.67 trillion in assets. iShares is a group of ETFs managed by BlackRock. Within the iShares, there is a group of ESG rated funds. The criteria set for funds to be considered ESG friendly needs improvement because iShares ESG MSCI USA Leaders ETF is not a very sustainable investment.

what it's made of:

1.5

The SUSL fund is composed of 263 holdings with the top ten holdings constituting 33.15% of the fund. The fund covers a broad range of market sectors but the most represented is Information Technology. Over 25% of the holdings are in this sector with Microsoft being the largest represented company in the stock. Other holdings include, Alphabet, Tesla, Johnson & Johnson, Visa, and Procter & Gamble. The fund focuses on large and mid-cap stocks, so that is why you will see large influential companies such as the ones listed above. This fund is focused on ESG metrics, so Morningstar gives them a Silver rating, which means it has medium risk. It is rated as Silver because its focus on ESG can lead to concentration risk, meaning it’s just not as diversified as other portfolios. I don’t think the portfolio’s focus on ESG metrics is a significant risk because companies will need to become sustainable in the near future, so this focus will only benefit investors. The fund was created in May of 2019 so it is still early to see how the fund will play out in the long run. I am a little concerned about the sustainability of this fund due to its focus on large corporations. Usually large corporations seem to be the most problematic when it comes to sustainability and GHG emissions. Although, when looking at Microsoft they seem to set the bar high for the rest of the holdings. Microsoft has been carbon neutral since 2012 which is way ahead of many other companies. Overall, I think the companies being held in this fund are about 50/50 when it comes to sustainability. I do believe companies like Microsoft and Tesla are leading the way for corporate America to become sustainable, but others still have their work cut out for them. The fund gets an “A” ESG rating from MSCI which equates to being average. This backs up my point about some holdings not being as sustainable as others. For instance, Johnson & Johnson doesn’t really seem to be doing much about environmental preservation. Over the last 10 years they have only reduced their carbon footprint by 15% and only get 20% of their energy from renewable sources. Compared to Microsoft, this isn’t doing much at all. If you want a diversified portfolio filled with large and mid-cap stocks, then SUSL is the fund for you, but if you truly want to be invested in sustainable companies I would look at other funds. Funds that target specific environmental issues seem to be more sustainable in the long run.

how it's made:

1

In order for an ETF to be classified as sustainable or ESG focused, it must meet a required set of metrics. The one notable thing about ESG ratings is that they look at risk and not exactly what the companies in their holdings are doing to mitigate climate change. Essentially, BlackRock’s active investors are meant to integrate sustainability-related insights into their normal investing procedure in order to improve long-term risk adjusted returns. This means an ETF could be full of companies that are low risk when it comes to the impacts of climate change in the future, but the companies in the ETF are not necessarily sustainable in terms of reducing global environmental impact. BlackRock looks specifically at investment processes, material insight, and transparency for their ESG integration. This process is disappointing because you then need to look at each individual ETF to determine if the ESG labeling means it is actually sustainable. This fund specifically, is created by focusing on companies of large and mid size. SUSL tracks an index and the companies held in the fund have high performance in environmental, social, and governance factors as compared to their sector peers. At least 65% of the fund’s gross weight comes from securities covered by MSCI ESG Research which means a majority of the fund is meeting ESG criteria. This concerns me because I don’t think the criteria for funds to be considered ESG friendly is very strict. The SUSL fund says they focus on companies that are leaders of ESG factors, but when looking at J&J it seems really easy to be considered a “leader.” Like I stated above, the process of ESG ratings is disappointing and needs to be greatly improved.

who makes it:

1.75

iShares are developed by BlackRock, as previously mentioned. BlackRock is one of the most influential and dominating asset management companies in the world. Because of this, it is important to factor in what the company is doing for their employees. BlackRock has several initiatives focusing on diversity and inclusion within the company. Their main philosophy is “we should treat others as they would like to be treated.” This is somewhat of a cliche, but nevertheless, it shows they want employees to be treated with respect. They know not all people want the same things, so they indicate it is important to talk and listen to one another to achieve full inclusion. For the benefit of the employees, BlackRock has created several “employee networks (https://careers.blackrock.com/life-at-blackrock/diversity-equity-and-inclusion#blackrock-founder-scholarshipus)” that focus on different backgrounds, social issues, and perspectives. These networks allow individuals to connect with one another in areas they identify with or are passionate about. Along with this, the company partners with 7 organizations to help in fostering diversity. BlackRock implemented a program called “Driving Better Decisions” which help leaders and managers mitigate bias in the workplace. Their website states that over 2,500 individuals have participated since 2015, but I would like to see a more updated statistic and overview of the program especially after the important social change movements we have witnessed since 2020. It seems that BlackRock hasn’t updated their diversity and inclusion goals recently, as they stated they want 30% female representation in senior management positions by 2020. I would really like to see if they hit this mark and if they plan to improve their goal in the following years. BlackRock is an Equal Opportunity/Affirmative Action Employer and is committed to working with people with disabilities. A majority of companies are committed to these issues, so these two facts don’t necessarily distinguish BlackRock from any other company. BlackRock came under some scrutiny by the Committee of Worker’s Capital (CWC) due to their Stewardship model. In their report (https://workerscapital.org/IMG/pdf/blackrock_cwc_report-09-2020-final.pdf), they say BlackRock has a narrow-mind approach that lacks access to remediation efforts for workers whose human rights were violated. One of BlackRock’s five priorities set in 2017, is Human Capital Management (HCM). The CWC says the policy doesn’t directly “support freedom of association, collective bargaining or the elimination of forced labour.” Along with this, BlackRock has made their commitments to reducing environmental impact clear, however, they have not publicly discussed their efforts to help workers affected by the transition to a low-carbon economy. All this to say, BlackRock needs to be more transparent when it comes to their labor practices and human rights, and they need to clearly define their commitments and intentions to these issues. BlackRock does well at fostering an inclusive and diverse workplace, but their human rights and labor practice policies need to be greatly improved. Overall, I would give a 1.75/3 planets in this category.