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 June 2022 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.
