Monday 5 August 2019

iShares MSCI World ESG Enhanced ETF

I have been on the look out for a more globally diverse, ethically orientated fund for a little while and recently found this new ETF from iShares launched in April (ticker EDMW).

It is basically a developed world index fund however the fund rules out companies involved in unethical businesses such as weapons, landmines and tobacco for example. It also excludes companies involved in coal production and oil sands. It also scores the remaining constituents according to environmental, social and governance criteria - ESG - and therefore companies which may be smaller but come out with a higher score will get a larger weighting in the overall portfolio.

For example, one of my individual shareholdings Orsted, a global leader in offshore wind gets a higher percentage weighting 0.14%, than much larger companies such as Mondalez or Kellogg for example. By comparison the weighting for this company with my Vanguard SRI is just 0.03%.

Here's a short extract from the MSCI website:

"In recent years ESG investing trends have been driven by more investors seeking not only social benefits but also managing financial risks and opportunities. In fact, a recent survey indicated that most asset owners surveyed see the management of financial risks as the key benefit of ESG. In addition, after the COP 21 conference in 2015, many investors came to realize that climate change is not only an environmental topic but also a financial risk that will very likely have a material impact on many companies’ profitability during the global transition toward a low carbon economy. An estimated $25 trillion invested in carbon-related infrastructure is thought to be at risk from this transition".

The MSCI range of indexes measure the carbon intensity of each index to assist investors who wish to take such matters into consideration. They measure the carbon intensity for each company in the index and this can then be used for portfolio weighting. The global average is 198.3 tons of CO2e per million $ of sales. With this ESG fund, the figure is 120.7.

Here is a comparison of weighting of the large oil companies with my Vanguard SRI Global which I covered back in February. I am not sure why some companies such as Shell are held in the Vanguard fund and not the other whilst BP is in the iShares fund but not Vanguard.

Ideally I am looking for a global index fund that excludes these big oil company shares as well as some of the other high carbon polluting industries such as airlines and meat production - a truely climate-friendly alternative. It would be even better if it was multi-asset fund including government and green bonds! But for now this may be as close as I am going to get other than the managed options.

I have been asking my broker AJ Bell to list this ETF for a while. They initially told me they could set something up if I had £85,000 to invest however, after getting iShares involved, I have now had confirmation that they will now agree to do this for ordinary investors to purchase...thanks but it really should not be so difficult for investors to hold ESG funds!

I now need to do a little more research and also assess whether right now is the best time to invest in more equities given the rise of the markets and the fall in sterling compared to the US dollar.

As ever, this article is merely a record of my personal investment decisions and should not be regarded as an endorsement or recommendation - always DYOR!


  1. It's great that your proactive ESG requests to companies are beginning to pay off. I appreciate your efforts which will hopefully be to your benefit and others like myself looking to invest as ethically as possible. I'll look forward to AJ Bell offering the iShares World ESG ETF. Many of the ethical active funds and ETFs are running at a premium to NAV, so there's obviously demand!

    Just wondering if you've looked at the new(ish) L&G ESG ETFs? I've taken a punt on their Clean Water ETF via AJ Bell which is currently at discount. Hoping it will prove a smart move in time!

    1. Thanks Jane. When I looked on Thursday, the iShares ETF was not set up on AJ Bell so we will need to be patient.

      I had a quick look at the new fund from L&G which looks interesting and reasonable OCFs. It seems to be the latest addition to their disruptive technology range of funds...the Battery one is also of interest.

      As it happens, I am just writing up my next post as I have just added L&G to my portfolio (again) as I want to support their ethical stance in holding some of the big companies to account.

      I am sure it won't be long before ethical investing in more climate-friendly funds is the norm and holding oil stocks will be akin to smoking in front of the kids!

  2. Thanks for the interesting article, DIY Investor. A few months ago I decided to go a little greener in a few areas, including investments, and wanted to find a single fund which was (1) accumulating (2) globally diversified (3) low(ish) cost and (4) had strong ESG/SRI characteristics. I ruled out most active funds as being too expensive and most ESG/SRI ETFs as not being diversified or "green" enough. Just omitting thermal coal, military weapons and tobacco, as many such funds do, wasn't really enough in my view. I wanted something that rewarded positive values and sustainable behaviour as well. In the end and after quite a bit of research I am going with the iShares Dow Jones Global Sustainability Screened UCITS ETF for several reasons. The fund has 541 portfolio companies across the globe (only 45% USA) and has a decent track record since 2011 (v VWRL, for instance) with USD 200m+ of assets. I liked the methodology behind the fund in excluding the usual suspects mentioned already and then taking the top 20% of the largest 2500 global sustainability companies of the Dow Jones Global Total Stock Market Index. The MSCI ESG Quality score is decent at 7.0. It is not perfect (it charges 0.60% and could be more diversified by geography) but it is an interesting offering nonetheless. Hopefully more low cost ETFs in this area will emerge in the coming months. Good to hear if anyone else has looked under the bonnet of similar funds lately. Keep up the great work!

    1. Thanks Nordics Guy. It's interesting to hear about alternative options for these ESG investments. This one seems to hold mainly large companies and I see it does not hold Orsted but does include Siemens Gamesa (Spain).

      This is the fastest growing sector of the market so I am sure there will be more on offer later this year. How about the 'Greta ESG Fund'?

  3. Have you considered ETF UC44, which is already available on YouInvest? 0.38% TER. It's portfolio seems more concentrated - it seems to follow a different MSCI index.

  4. While the ESG concept is great, it has fragmented the market by using inconsistent / slight variations of definitions.

    MSCI has produced a number of similar but different indexes each with varying number of holdings - creating much confusion
    MSCI World SRI see SUWS 386 holdings
    MSCI World ESG Screened see SAWD 1537 holdings
    MSCI World ESG Enhanced see EEWD 1325 holdings

    trying to find the differences is quite a task

    FTSE and S&P use different rules.

    1. PJ, yes fragmented sums it up. The more I look into this, the more variations I see.

      Here's the range of ESG options from their site
      Leaders, Focus, Universal, Screened, Climate, Low Carbon...

      Basically, I would like iShares or Vanguard to just come up with a low cost, climate-friendly global index fund which excluded companies involved in carbon intensive activities such as oil and coal.

      Hopefully something like this is not too far off...the investing community has a big part to play in the transition to reach net zero emissions but I suspect the powerful vested interests who wish to maintain business as usual are obstructing progress.

  5. Thanks DIY Investor for looking at this. I did the same recently from a purely climate perspective and the choice out there for passive investors is pretty useless. e need to true 'climate change' index. In my investments where I have held managed funds I have made switches as there are options here at least. The policy for 'Henderson Global Sustainable' is probably currently the best out there.

    There was in interesting development about how pension funds might have to legally ensure Pensions are suitably invested for a climate changed world (from a risk perspective) - so i wonder if this will start making bigger changes in the industry.

    1. Yep, MSCI already provide the index for Climate and Low Carbon (see above) but the fund managers such as Vanguard and iShares have not yet provided the fund to track either so far as I can see.

      Climate is now definitely near the top of the list for the global investing industry so the landscape is shifting at pace and I am sure we won'y have to wait too much longer for more climate-friendly index funds.

      I will take a look at the Henderson fund, thanks.

    2. Wow, thanks for recommending the Janus Henderson Global Sustainability Equity Fund. That looks like a great climate friendly replacement for my main fund in my SIPP (L&G Int. Index Trust I Class Acc).

  6. Thanks for highlighting this one! Have you seen anything about how they intend to use their voting rights? I have mixed feelings about divesting entirely vs applying shareholder action - L&G actually had a good track record for voting in favour of climate related motions ( vs Vanguard and Blackrock that were frankly very poor. Would be interested to know your own thoughts on this!

  7. Fantastic reading up about your shift away from fossil fuels into friendlier (and possibly financially safer) alternatives.

    I really wish there was a multi asset fund as you describe, with a diversified equity and bond mix that is regularly rebalanced. Something like the HSBC Global Strategy or BlackRock MyMap but with fossil fuels filtered out.

    1. Thanks Joe, I guess we all do our best given our level of awareness. I am still waiting for news from the big providers about offering such funds but they have been slow to respond. However, I now think that just excluding the fossil fuel companies would not go far enough - there's also the big banks which finance their operations to be excluded and also the insurers who underwrite their risks.

      Maybe I will just continue building my bespoke portfolio for the time being!