Funds Group: BlackRock Funds
Management Company: BlackRock Advisors, LLC (Bond fund and equity funds). Sub-adviser for bond fund only-BlackRock International Limited.
Funds Affected: (1) BlackRock Impact Bond Fund and (2) BlackRock Impact US Equity Fund
Principal Sustainable Investment Management Strategy: ESG Integration, Exclusions Shareholder Engagement, Proxy Voting
Blackrock Funds Summary:
(1) The fund will select corporate bonds of companies to seek to generate alpha (i.e., returns on an investment as measured against a benchmark) and positive aggregate societal impact outcomes, as determined by BlackRock using the BlackRock Scientific Active Equity (SAE) Impact Methodology.
Among the principal societal impact outcomes that are currently measured for corporate bonds are corporate citizenship, high impact disease research, greenhouse gas emissions, ethics controversies and litigation, although these may change at any time and one or more societal impact outcomes may not be relevant to all companies that are eligible for investment. The fund does not intend to use the SAE Impact Methodology for all instruments in which it may invest and the model may evolve over time.
The fund will screen out certain companies or industries, including companies that are classified in the tobacco and alcohol industry based on Global Industry Classification (GIC) codes and certain companies whose primary business is weapons, as determined by BlackRock.
(2) The fund invests in a portfolio of equity securities of companies with positive aggregate societal impact outcomes, as determined by BlackRock using the BlackRock Scientific Active Equity (SAE) Impact Methodology.
The BlackRock SAE Impact Methodology is systematically and quantitatively applied, in conjunction with proprietary return drivers, to the universe of companies included in the Benchmark, after screening out companies that are classified in the tobacco and alcohol industry based on Global Industry Classification (GIC) codes and certain companies whose primary business is weapons, as determined by BlackRock. Each company is then ranked in accordance with the BlackRock SAE Impact Methodology and systematically and quantitatively combined with a return, risk and transaction cost forecasts in order to determine the selection and allocation of securities within the portfolio of the fund.
BlackRock SAE Impact Methodology
The BlackRock SAE Impact Methodology seeks to measure select societal impact outcomes of companies. Where one or more measurable societal impact outcomes are identified in an eligible company, that information will be considered, together with forecasts of return, risk and transaction costs, as well as other information, in determining whether the weight of an investment in that company will be higher or lower than its Benchmark weight. To evaluate a company using the BlackRock SAE Impact Methodology, BlackRock measures a series of societal impact outcomes. The societal impact outcomes utilized in the process may change over time and one or more outcomes may not be relevant to all companies that are eligible for investment. The BlackRock SAE Impact Methodology does not attempt to capture all positive or negative outcomes, rather those that, in BlackRock’s opinion, can be measured and have an investment thesis associated with the outcome. BlackRock determines which outcomes to include in the model and what changes are made in the model over time. Among the principal societal impact outcomes that are currently measured are the following, although they may change at any time:
- Corporate Citizenship — “Corporate citizenship” focuses on companies whose employees have a high level of satisfaction working for their employers.
- High Impact Disease Research — Companies that work on “high impact disease research” are companies that are researching treatments for diseases with the highest potential for global impact, measured by the number of lives affected due to potential reduction in early mortality and disability.
- Greenhouse Gas Emissions — Companies that report lower levels of carbon emissions.
- Ethics Controversies — “Ethics controversies” reflect factors such as misuse of company funds, falsification of company records and other illegal activities, as well as factors in the areas of diversity, labor rights, health and safety, and the environment.
- Litigation — “Litigation” reflects the presence of lawsuits and/or labor issues at a company.