While there are now a handful of "ESG" or "green" money funds in the U.S., there haven't been any in Europe (at least not among true "U.S.-style" or "short-term" money funds), until now. Last week, BlackRock converted its ICS Euro Asset Liquidity Fund into BlackRock ICS Euro Liquid Environmentally Aware Fund, or "LEAF." While they are not live yet, a BlackRock publication, "The new environment for cash investing," tells us that USD and Sterling ICS LEAF funds are imminent. The brochure says, "Assets in dedicated sustainable investing strategies have grown at a rapid pace in recent years, and this trend is showing no signs of slowing. Yet limited product offering exist today that allow Cash investors to act on these priorities. BlackRock is seeking to change that with an innovative new investment option for ESG-focused cash investors."
They explain, "The BlackRock Institutional Cash Series (ICS) Liquid Environmentally Aware Fund Series ('LEAF' series or the 'Funds') provide investors an opportunity of a short-term variable net asset value (VNAV) money market fund through investment in securities issued or guaranteed by entities that meet the Funds' ESG criteria. The ICS LEAF series are a part of BlackRock Global Cash Management's effort to incorporate ESG factors into Cash investing. Companies are evaluated and selected based on their commitments to positive ESG business practices."
BlackRock writes, "In order to achieve the LEAF series' ESG goals, BlackRock will consider ESG risk metrics in addition to our standard credit risk assessment process. To evaluate performance in ESG practices, BlackRock will use data or other ESG risk metrics, including ratings provided by independent research vendors, in determining whether to invest (or continue to invest) in securities issued or guaranteed by a particular entity. Additionally, BlackRock is seeking to enhance core credit research through proprietary models that incorporate ESG factors into traditional credit analysis to determine an investment's ESG score for eligibility for inclusion in the LEAF series."
They tell European and non-U.S. investors, "The LEAF series will prohibit investment in issuers that fall within the exclusionary screens defined for the LEAF series. These screens include controversial weapons, fossil fuels, thermal coal, nuclear energy, civilian firearms, tar/oil sands, tobacco.... In addition to the LEAF series' ESG-focused investment strategy, 5% of the net revenue from BlackRock's management fee from the Funds will be used to purchase and retire carbon offsets either directly or through a third-party organization."
BlackRock states, "The LEAF series operate within our existing Institutional Cash Series and are managed to the same investment objectives of preservation of principal, liquidity and yield. At BlackRock, we believe that ESG strategies can be implemented without compromising risk-adjusted returns. The Funds operate as short-term VNAV MMFs and adhere to the required liquidity requirements for this fund type; minimum of 7.5% daily maturing assets and minimum of 15% weekly maturing assets. The Funds are rated Aaa-mf by Moody's, additionally the US Dollar Fund is AAAm rated by S&P."
They add, "In an attempt to achieve its ESG goals, the LEAF series will invest at least 80% of the value of its net assets in securities whose issuer or guarantor, in the opinion of BlackRock, meet LEAF's ESG criteria, at time of purchase. Investments will be in a broad range of money market instruments, including: Time deposits (TD), Reverse Repurchase Agreements (Repo), Certificates of deposits (CD), Commercial paper (CP), Floating Rate Notes (FRN), Eurobonds/Bonds fund range, Government Bonds and Bills, Sovereign, Supranational and Agency Bonds."
For more on ESG and Green Money Market Funds, see the following Crane Data News articles: Fitch on ESG in Money Funds (7/19/19), SSGA Goes Live with ESG Money Market Fund (7/3/19), Cap Advisors Group Demystifies ESG Investing (6/19/19), State Street Files to Launch ESG Liquid Reserves Fund; LEAF Now Live (4/25/19), Moody's Rates BlackRock LEAF Aaa-mf (4/10/19), More on Green, ESG Money Funds: What's Not There, Barron's (2/11/19), SSGA's 2019 Global Cash Outlook Discusses ESG MMF Challenges, Tech, AI (2/4/19), FT Says China's Ant Shrinks; More on BlackRock LEAF (1/30/19), BlackRock to Launch Environmental MF (1/23/19) and DWS ESG Liquidity Goes Live (9/17/18).
In related news, BlackRock also hosted its Q2'19 earnings call Friday. While they didn't mention the ESG money market fund, they did make a few comments on cash. President Rob Kapito says, "We saw $26 billion of cash management net inflows in the second quarter and we are now number three globally as a money market provider. And these flows come from both large separate accounts wins and strong flows into our institutional money market funds as we continue to innovate, leverage scale and deliver digital distribution and risk management solutions." (Note: Crane Data shows BlackRock's U.S. money funds increasing $16 billion during the quarter.)
He continues, "More than 95% of BlackRock's cash assets under management is institutional, where we are differentiated with our scale, risk management and technology. So, we believe this differentiated set of cash offerings, including money market funds, separate accounts, ... ETFs and other short duration strategies help us to serve our clients."
Kapito adds, "And lastly, I would say, in cash, we are transforming our cash management business by delivering distribution and risk management technology through a portal that we have called Cachematrix and also through Aladdin. So, we are creating a technology-first distribution strategy, and this is driving our success in cash as well as holistic approaches to get these large strategic wins."
