Over the past few years, investors have become more conscientious about the companies in which they invest. Many of them have begun prioritizing companies that focus on environmentally conscious, socially responsible, and stakeholder-friendly practices -- known as ESG investing.
One company that has made sustainable investing an increasingly important part of its bottom line is BlackRock (BLK +0.00%). In CEO Larry Fink's annual letter to shareholders this March, he said sustainable investing has become a cornerstone to the company's long-term profit objectives. The company is well positioned to provide that via its iShares exchange-traded fund (ETF) offerings.
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Sustainable investment options continue to grow
According to the U.S. SIF, the Forum for Sustainable and Responsible Investment, total socially responsible fund assets in the U.S. increased by 38% to $12 trillion from 2016 to 2018.
In addition, in a 2019 survey of 89 organizations performed by the Callan Institute, an investment consulting firm, 42% of those surveyed have incorporated ESG factors into their investment decisions. This figure has nearly doubled since 2013, when only 22% of those organizations said they incorporated ESG factors into their investment decisions.
This isn't just a U.S. phenomenon. When surveyed by ETF provider Invesco, more than half of European investors -- which included institutional investors such as pension funds and insurance companies -- said they are gaining ESG exposure through passive ETFs, which track ESG indexes. According to Gary Buxton, Invesco's head of EMEA ETFs and Indexed Strategies, as many investors look for funds with ESG considerations, "it is clear that ETFs are playing an increasingly central role in helping them gain exposure." He adds that investors are attracted to ETFs "due to their low costs and simplicity" while delivering on performance objectives.
With over 900 iShares ETF options available to investors, and over 100 of those ETFs focusing sustainable investment opportunities, BlackRock has taken the lead in providing sustainable ETFs to a wide range of investors.
A 'fundamental reshaping of finance' through sustainability
In Fink's letter to shareholders, he discussed the impact that environmentally conscious investing will have, and stated that this would lead to a "fundamental reshaping of finance" as we know it. He discussed how "climate change has become a defining factor in companies' long-term prospects" and that awareness about sustainable investing is "rapidly changing."
Fink strongly believes that the company cannot achieve long-term profits "without embracing purpose and considering the needs of a broad range of stakeholders." He goes on to say that "a strong sense of purpose and a commitment to stakeholders helps a company connect more deeply to its customers and adjust to the changing demands of society" and that "purpose is the engine of long-term profitability."
As of April 2020, BlackRock offers 105 sustainable ETFs and index mutual funds with $45 billion in assets. These ETFs make ESG investing easily accessible and widely available to investors of all types. BlackRock continues to expand its ESG investment offerings via their iShares ETFs and has launched 23 new ESG funds since January alone, and it is closing in on its three-year goal of providing 150 sustainable ETFs to investors.
To put this in perspective, BlackRock currently offers over 900 iShares ETF options for investments of all varieties, with a total of $2.2 trillion assets under management. With iShares ETFs making up almost 30% of the company's almost $7.3 trillion total assets under management (AUM), it has become a significant part of BlackRock's bottom line.
In fact, iShares ETFs grew by 30% in AUM from 2018 to 2019, which helped boost revenue fees associated with its iShares offerings by 2%, from $4.37 billion to $4.46 billion over that same time period. Over this period, this helped both the top line -- the company saw total revenue grow 2.4% from $14.2 billion to $14.5 billion -- and the bottom, as net income grew 4% from $4.3 billion to almost $4.5 billion. (And the gains have continued -- over the past four quarters, revenue is up 8.3% and net income has grown 5.7%.)
Increasing sustainable ETF options is sure to boost the company's assets and revenue even further.
Demand for ESG ETFs is high, and BlackRock is leading the charge
Demand for BlackRock's ESG products continues to grow. According to the company's most recent earnings call, inflows into its sustainable iShares ETFs year to date were $17 billion, far outpacing the $12 billion in inflows into these funds from 2019 and representing an annualized growth of 183% year over year.
On a broader scale, sustainable ETFs took in $38.8 billion globally in net inflows this year, according to data provided by research firm ETFGI LLP. Based on these figures, BlackRock's inflows made up a significant portion of the overall inflows into these sustainable products this year, capturing almost 45% of the inflows with their iShares products alone.
While BlackRock has $90 billion in ESG assets under control via its iShares ETFs and other actively managed funds, it believes that the total market for globally sustainable ETF assets will grow to $1.2 trillion globally by 2030, and it has positioned itself well to capture a significant share of this market.
BlackRock is leading in the industry when it comes to ESG investing. The company has ensured that it will have plenty of ESG options available to investors to fit their investment needs, making it the go-to company for providing sustainable, accessible investment opportunities.
