iShares, Inc. iShares ESG Aware MSCI EM ETF (ESGE) seeks to track the MSCI Emerging Markets ESG Aware Index, which measures the performance of emerging market stocks while applying environmental, social, and governance (ESG) screening criteria to exclude controversial businesses and emphasize companies with higher ESG ratings.
How It Works
ESGE uses a passively managed, market-capitalization-weighted approach that follows MSCI's ESG Aware methodology. The fund excludes companies involved in controversial weapons, tobacco, thermal coal, and oil sands, while overweighting firms with superior ESG scores relative to sector peers. Holdings are rebalanced quarterly to maintain index alignment. The ETF typically holds 800-900 emerging market stocks across countries like China, Taiwan, India, and South Korea.
Key Features
- Applies systematic ESG screening while maintaining broad emerging markets exposure, avoiding concentrated sector bets common in pure ESG funds
- Covers major emerging economies including China, India, Taiwan, and South Korea with market-cap weighting for natural diversification
- Managed by BlackRock with access to MSCI's established ESG research methodology and quarterly index rebalancing for consistency
Risks
- This ETF can lose significant value during emerging market selloffs, potentially declining 40-50% during global risk-off periods like 2008 or 2020
- ESG screening may create unintended sector concentrations or exclude well-performing companies, potentially lagging traditional emerging market indexes during certain periods
- Currency fluctuations from emerging market countries can amplify volatility, as local currency weakness versus the dollar reduces USD-denominated returns for U.S. investors
Who Should Own This
Best suited as a satellite holding (10-25% of equity allocation) for ESG-conscious investors with 5+ year time horizons seeking emerging markets exposure. High risk tolerance required due to emerging market volatility. Appropriate for investors who want developing country growth potential while maintaining ESG principles in their portfolio construction.