At Common Wealth, we often get questions from employers and plan members about how sustainability and climate change fit into our investment approach. ESG investing is a type of sustainable investing that includes focuses on the environmental, social and corporate governance factors that impact a company's financial performance.
The plan's target date funds are managed by BlackRock, which manages more than $10 trillion in assets and serves more than 35 million investors. Since 2022, BlackRock has evolved the the target date fund portfolios to integrate ESG building blocks. BlackRock replaced many of its underlying equity funds with funds that closely follow MSCI's Extended ESG Focus indices. These indices invest in companies with strong ESG characteristics, favouring those with high MSCI ESG ratings and excluding companies involved in industries like tobacco and controversial weapons. They are designed to offer similar returns and risk to the indices they replace. This shift reflect's BlackRock's increased emphasis on sustainable investing, driven by evolving investor performances and investment research. The LifePath funds are expected to provide similar or slightly better long-term performance with these changes.
For more information on BlackRock’s approach to sustainable investing, you can check out the firm’s Investment Stewardship, as well as BlackRock CEO Larry Fink's focus on sustainability in his annual letter to chief executives.