BlackRock has launched a new ETF in the US providing exposure to developed market real estate holdings while tilting towards energy-efficient and renewables-linked properties.
The fund is the first US-listed ETF to offer sustainability-focused exposure to real estate assets.
The iShares Environmentally Aware Real Estate ETF (ERET US) has been listed on Nasdaq with an expense ratio of 0.30%.
The fund is the first US-listed ETF to offer sustainability-focused exposure to real estate assets.
The ETF is linked to the FTSE EPRA Nareit Developed Green Target Index which is based on the parent FTSE EPRA Nareit Developed Index universe that covers real estate investment trusts (REITs) and other property companies listed in developed markets globally.
The methodology first screens out securities that are in violation of UN Global Compact principles or hold significant real estate assets that are used in controversial businesses such as weapons, tobacco, thermal coal, or oil sands extraction.
The remaining securities are then weighted using an optimization technique that increases the weights of real estate holdings with higher ‘Green Certification’ and lower ‘Energy Usage’ scores. A company’s Green Certification score is determined through the proportion of its total net leasable area that is dedicated to producing renewable energy, while its Energy Usage score is derived using its average energy consumption per square metre of net leasable area.
To assess the sustainability performance of the constituents, FTSE Russell harnesses building-by-building geolocation data mapping from GeoPhy. GeoPhy currently maps over 15 million buildings, covering real estate holdings for 93% of the constituents of the FTSE EPRA Nareit Developed Index. This data is then matched with green certification data and provides the basis for detailed energy use and carbon emissions modeling.
Constituents in the index are weighted so as to deliver at least a 30% increase in Green Certification and at least a 10% reduction in Energy Usage, while also maintaining an aggregate carbon emissions footprint that is no worse than the parent universe.
The optimization technique also includes limits on beta and deviations in country and REIT sector weights relative to the parent universe, as well as caps and floors on individual real estate holdings, although these limits may be relaxed to ensure that the index’s sustainability targets are met.