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Investment adviser:  BlackRock Fund Advisors

Launch date:  January 2023

Expense ratio:  0.18%

Fundamental investing strategy:  Investing in US growth-oriented large and mid-cap equities seeking to replicate the MSCI USA Growth Extended ESG Focus Index which has been developed by MSCI Inc.  The index is an optimized equity index designed to reflect the equity performance of U.S. companies that exhibit growth characteristics as well as positive environmental, social and governance (“ESG”) characteristics, as determined by MSCI, and risk and return characteristics similar to those of the MSCI USA Growth Index.  The MSCI USA Growth Index includes U.S. large- and mid-capitalization stocks that generally represent approximately 50% of the free float-adjusted market capitalization of the MSCI USA Index and that are identified by MSCI as exhibiting overall growth style characteristics. MSCI uses five variables to identify growth style securities: long-term forward earnings per share (“EPS”) growth rate, short-term forward EPS growth rate, current internal growth rate, long-term historical EPS growth trend and long-term historical sales per share growth trend.  The index is rebalanced quarterly.

Sustainable investing approach:  ESG integration, focusing on higher ESG scoring companies, and employing exclusions.  Starting with securities that make up the MSCI USA Growth Extended ESG Focus Index, MSCI excludes securities of companies involved in the business of tobacco, companies involved with controversial weapons, producers and retailers of civilian firearms, and companies included in certain climate change-related activity such as the production of thermal coal, thermal coal-based power generation and extraction of oil sands, based on revenue or percentage of revenue thresholds for certain categories (e.g., $20 million or 5%) and categorical exclusions for others (e.g., controversial weapons).

Also excluded are companies that are directly involved in very severe, ongoing business controversies, defined as an instance or ongoing situation in which company operations and/or products allegedly have a negative ESG impact, including alleged violations of laws, regulations, or accepted international norms (e.g., human rights violations or toxic emissions and waste). In each case, severe business controversies are determined by MSCI based on an MSCI ESG Controversy Score. MSCI excludes companies that are not assessed regarding severe business controversies.

All index constituents are scored by MSCI on their management of ESG risks and opportunities (“ESG Score”).  For each industry, key ESG issues are identified that may generate unanticipated costs for a given company or industry.  MSCI has identified 35 key ESG issues across the following 10 themes: climate change, natural capital, pollution and waste, environmental opportunities, human capital, product liability, stakeholder opposition, social opportunities, corporate governance and corporate behavior.  MSCI then calculates the size of each company’s exposure to each key issue based on the company’s business segment and geographic risk and analyzes the extent to which the company has developed robust strategies and programs to manage ESG risks and opportunities. Using a sector-specific weighting model, companies are rated and ranked in comparison to their industry peers. A higher ESG Score indicates that a company exhibits more favorable ESG characteristics and greater resilience to long-term, material ESG risks specific to that industry.

MSCI then follows a quantitative process that is designed to determine optimal weights for securities to maximize exposure to securities of companies with higher ESG ratings, subject to maintaining risk and return characteristics similar to the MSCI USA Growth Index. 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Companies selected based on their positive environmental, social and governance characteristics as well as certain exclusions.  These apply to securities of companies involved in the business of tobacco, companies involved with controversial weapons, producers and retailers of civilian firearms, and companies included in certain climate change-related activity such as the production of thermal coal, thermal coal-based power generation and extraction of oil sands, based on revenue or percentage of revenue thresholds for certain categories (e.g., $20 million or 5%) and categorical exclusions for others (e.g., controversial weapons).  The Index Provider also excludes companies that are directly involved in very severe, ongoing business controversies, defined as an instance or ongoing situation in which company operations and/or products allegedly have a negative ESG impact, including alleged violations of laws, regulations, or accepted international norms (e.g., human rights violations or toxic emissions and waste). In each case, severe business controversies are determined by the Index Provider based on an MSCI ESG Controversy Score.

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