SUSTAINABILITY CHARACTERISTICS FAQ

Leveraging MSCI ESG Ratings and research coverage, MSCI ESG Research creates ESG ratings and metrics for approximately 32,000 multi-asset class Mutual Funds and ETFs globally. MSCI ESG Fund Ratings aims to provide fund-level transparency to help clients better understand and measure the environmental, social and governance characteristics of a portfolio, and rank or screen funds based on a diverse set of ESG exposure categories.

To be included in MSCI ESG Fund Ratings, a fund must pass the following three criteria:

• High coverage thresholds: 65% or more of the fund’s underlying holdings (excluding cash positions) are covered by MSCI ESG Research.
• Updated Holdings Data: Fund holdings date must be less than one year old.
• Portfolio Holdings Minimum: Fund must have at least ten securities.

For newly launched funds, sustainability characteristics are typically available 6 months after launch.

The overall MSCI Fund ESG Rating and MSCI Fund ESG Quality Score measure the ability of underlying holdings to manage key medium- to long-term risks and opportunities arising from environmental, social and governance factors. The MSCI Fund ESG Quality Score is provided on a 0-10 scale, with 0 and 10 being the respective lowest and highest possible fund scores. The MSCI Fund ESG Quality Score corresponds to an MSCI ESG Fund Rating based on the scale below. The MSCI ESG Fund Rating is provided on a AAA-CCC scale, with AAA and CCC being the respective highest and lowest possible fund ratings. MSCI rates underlying holdings according to their exposure to 37 industry specific ESG risks and their ability to manage those risks relative to peers. These issuer-level ESG ratings correspond to an issuer-level ESG score.

Percentage of the fund's holdings for which the MSCI ESG ratings data is available. The MSCI ESG Fund Rating, MSCI ESG Quality Score, and MSCI ESG Quality Score - Peer Percentile metrics are displayed for funds with at least 65% coverage.

A percentile rank (1-100) that measures how the fund’s ESG Quality Score ranks relative to other funds in the same peer group. Peer groups are defined by the Lipper Global Classifications.

The following criteria must be met for a fund to receive a Peer Rank:

• The fund must be categorized by the Lipper Global Classification scheme.
• The peer group must contain at least 30 funds.
• The standard deviation of the Fund ESG Quality Score within the peer group must be greater than, or equal to, 0.1. This variation creates a systematic ranking system for the funds within the peer groupMSCI Fund ESG Rating and MSCI Fund ESG Quality Score.

Funds within one Lipper Global Classification (LGC) sector invest in the same financial markets or specific segments of those markets but may adopt different investment strategies or styles to achieve their investment objectives. As a general rule a fund must hold a prevalent exposure with a threshold set at 75% of its portfolio in order to meet an LGC requirement. Since temporary changes in strategic asset allocation with divergences from the historical pattern may be possible, it is essential to look at historical data to meet the specific classification requirement.

The number of funds used to calculate the MSCI ESG Quality Score – Peer Rank. This is based on the Lipper Global Classification and reflects the funds that are in the MSCI ESG Fund ratings coverage universe.

The ESG Quality Score is calculated using an enhanced holdings-based methodology that incorporates the following:

• the underlying holdings’ Weighted Average ESG Score.
• the fund’s ESG Momentum, including the fund’s exposure to holdings with an improving ESG rating trend (positive) and the fund’s exposure holding with a worsening ESG rating trend (negative).
• the fund’s exposure to ESG Tail Risk, specifically holdings with CCC and B ESG Ratings.

The net exposure of positive trend, negative trend and tail risk are applied as a multiplier to the weighted average score to calculate the ESG Quality Score. The MSCI Fund ESG Quality Score is then converted to a letter rating that ranges from AAA-CCC based on the scale shown below.

The range, and average, of Fund ESG Quality Scores varies widely across peer groups. Many factors, such as  regional concentrations, can contribute to peer group differentiation. While a particular peer group may tend to have high, or low, Fund ESG Quality Scores, the peer group percentiles signal how each fund ranks within its group.

The MSCI Weighted Average Carbon Intensity (tCO2e/$M sales) measures a fund's exposure to carbon intensive companies. It is calculated as the sum of security weight (normalized for corporate positions only) multiplied by the security Carbon Intensity. This allows for comparisons between funds of different sizes.

Percentage of the fund's holdings for which MSCI Carbon Intensity data is available. The MSCI Weighted Average Carbon Intensity metric is displayed for funds with any coverage. Funds with low coverage may not fully represent the fund’s carbon characteristics given the lack of coverage.

The ITR metric is used to provide an indication of alignment to the temperature goal of the Paris Agreement for a company or a portfolio. Scientific consensus suggests that reducing emissions until they reach net zero around mid-century (2050-2070) is how this goal could be met. A net zero emissions economy is one that balances emissions and removals.

Percentage of the fund’s holdings for which MSCI Implied Temperature Rise data is available. The MSCI Implied Temperature Rise metric is displayed for funds with at least 65% coverage.

The ITR metric is calculated by looking at the current emissions intensity of companies within the fund's portfolio as well as the potential for those companies to reduce its emissions over time. If emissions in the global economy followed the same trend as the emissions of companies within the fund's portfolio, global temperatures would ultimately rise within this band.

Note, only corporate issuers are covered within the calculation. A summary explanation of MSCI’s methodology and assumptions for its ITR metric can be found here.

Because the ITR metric is calculated in part by considering the potential for a company within the fund’s portfolio to reduce its emissions over time, it is forward-looking and prone to limitations. As a result, BlackRock publishes MSCI’s ITR metric for its funds in temperature range bands. The bands help to underscore the underlying uncertainty in the calculations and the variability of the metric.

This forward-looking metric is calculated based on a model, which is dependent upon multiple assumptions. Also, there are limitations with the data inputs to the model. Importantly, an ITR metric may vary meaningfully across data providers for a variety of reasons due to methodological choices (e.g., differences in time horizons, the scope(s) of emissions included and portfolio aggregation calculations).

• There is not a universally accepted way to calculate an ITR.
• There is not a universally agreed upon set of inputs for the calculation.
• At present, availability of input data varies across asset classes and markets. To the extent that data becomes more readily available and more accurate over time, we expect that ITR metric methodologies will evolve and may result in different outputs.
• Where data is not available, and / or if data changes, the estimation methods vary, particularly those related to a company’s future emissions.

The ITR metric estimates a fund’s alignment with the Paris Agreement temperature goal. However, there is no guarantee that these estimates will be reached. The ITR metric is not a real time estimate and may change over time, therefore it is prone to variance and may not always reflect a current estimate.

The ITR metric is not an indication or estimate of a fund’s performance or risk. Investors should not rely on this metric when making an investment decision and instead should refer to a fund’s prospectus and governing documents. This estimate and the associated information is not intended as a recommendation to invest in any fund, nor is it intended to indicate any correlation between a fund’s ITR metric and its future investment performance.

The ITR metric can be used by investors along with other data and analytics to understand how portfolios and investment strategies are aligned with the temperature goal of the Paris Agreement.