SUSTAINABLE OPTIONS METHODOLOGY

OVERVIEW

The iShares ‘Sustainable options’ feature is designed to help investors learn about sustainable iShares funds that may help them meet their financial and sustainable investment goals. It highlights the iShares sustainable funds that could be considered as ‘Sustainable options’, in relation to non-sustainable funds.  As many factors could influence a decision about which product is best suited for a given investment goal, this information should not be relied upon exclusively when evaluating various investment options.

HOW ‘SUSTAINABLE OPTIONS’ ARE DETERMINED

A ‘Sustainable option’ must meet one of two criteria, outlined below. In addition, iShares investment product strategists manage and maintain the ‘Sustainable options’ to ensure only appropriate options are displayed.

1. The two funds have a shared parent benchmark index

Funds can be associated based on a shared parent benchmark index. Therefore, a sustainable fund that shares a parent benchmark index with a non-sustainable fund, can be considered a ‘Sustainable option’ in relation to the non-sustainable fund.

Example:

iShares Core MSCI Europe UCITS ETF EUR (Acc), and:
iShares MSCI Europe ESG Enhanced UCITS ETF EUR (Acc)

In this example, the sharing of ‘MSCI Europe index’ as a parent benchmark index connects the two funds.

2. The two funds’ parent benchmark indices have a correlation of above 90% 

An association between two funds can be established based on their parent indices correlation. Correlation is used as it can identify the degree of similarity in the performance and risk profile between two indices. In this instance a correlation above 90% is required to establish that association.

Therefore, a sustainable fund with a parent benchmark index that has a correlation of above 90% with a non-sustainable fund’s parent benchmark index, can be considered a ‘Sustainable option’ in relation to the non-sustainable fund.

Example (based correlation analysis of MSCI Japan IMI index and MSCI Japan index):

iShares Core MSCI Japan IMI UCITS ETF USD (Acc)and:
iShares MSCI Japan ESG Enhanced UCITS ETF USD (Acc)

In this example, MSCI Japan IMI index and MSCI Japan index have a correlation of above 90% (based on May 2020 calculations).

The correlation analysis is based on daily performance data over a one-year period, as set forth herein. Correlations are recalculated semi-annually for existing ‘Sustainable options’ and on an ad hoc basis for new fund inclusions (qualifying under criteria 2). If a correlation no longer exceeds 90%, the ‘Sustainable option’ association will be removed.

SHARE CLASS AND DISTRIBUTION METHOD

‘Sustainable option’ funds that have the same share class characteristics and distribution methods with the non-sustainable fund will always be shown when available. Only where this is not available will a fund with different distribution method or share class be used.

MULTIPLE SUSTAINABLE OPTIONS

Multiple ‘Sustainable options’ can be shown in relation to a single non-sustainable fund.

For example:

‘iShares Core MSCI Europe UCITS ETF EUR (Acc)’ is associated with three ‘Sustainable options’:

  1. iShares MSCI Europe ESG Screened UCITS ETF EUR (Acc)
  2. iShares MSCI Europe ESG Enhanced UCITS ETF EUR (Acc)
  3. iShares MSCI Europe SRI UCITS ETF EUR (Acc)

‘Sustainable options’ will only be shown for single non-sustainable funds. There will be no ‘Sustainable options’ shown for other sustainable funds. There will be no ‘Sustainable options’ shown for multiple non-sustainable funds.

‘Sustainable options’ will only be shown for ETF’s.