Exclusive-BlackRock fast-tracks eviction of ESG violators from MSCI-linked ETFs

By Virginia Furness

LONDON (Reuters) -BlackRock Inc, the world’s biggest asset manager, has halved the time it takes for companies breaching certain environmental, social and governance-related standards to be removed from a number of its iShares exchange-traded funds.

BlackRock’s “fast-exit” rule, which went live in December and has not previously been reported, will see such companies removed in 45 days at most rather than 90 days previously. The ruling covers 35 of its European listed ESG ETFs that track MSCI indices.

The change, which affects ‘custom’ funds containing $55.5 billion in assets, follows conversations with German wealth managers, who were keen to see poor ESG performance reflected more quickly across the ETFs, a BlackRock spokesperson said.

“We found that there was a desire to re-examine the timescales around the removal of companies with the worst controversies,” the spokesperson added.

The changes will be triggered if a company’s MSCI ESG Controversies score drops to zero, on a scale of 0-9, or if MSCI deems a company to be in violation of the United Nations Global Compact (UNGC), leading to its removal from the index.

The UN Global Compact is a global initiative calling for businesses to be more sustainable and responsible. It asks them to agree to a set of 10 principles concerning everything from human rights, labour and environment to anti-corruption.

MSCI ESG Controversies measure companies based on actual or alleged involvement across a range of adverse ESG indicators including human rights, child labour and toxic waste.

The new rules were introduced to BlackRocks’ MSCI custom indicies, where BlackRock defines the index rules, from Dec. 1 after discussions beginning last summer. Companies will be reviewed for exclusion on a monthly basis.

Separately, MSCI introduced a similar set of rules for its MSCI ESG Screened Indexes range in February after a consultation with the broader funds industry that began last year.

BlackRock has six ETFs based on MSCI’s Screened range with assets of around $15 billon. MSCI told Reuters it does not track how much capital in total tracks the indexes.

(Reporting by Virginia Furness; Editing by Kirsten Donovan)