The new fund provides exposure to companies that will outperform during the transition to a low-carbon world.

The BlackRock US Carbon Transition Readiness ETF (LCTU), which began trading on Thursday, won the crown for being the largest ETF launch ever, drawing investments of $1.25 billion from institutional investors. (FT)

BlackRock also launched the BlackRock World ex U.S. Carbon Transition Readiness ETF (LCTD) alongside the US ETF. This ETF attracted $475 million in investments.

The California State Teachers’ Retirement System, or CalSTRS, invested $650 million in the new US ETF and $350 million in the global fund. Other investors included Temasek, Sura Asset Management, Varma Mutual Pension Insurance Company, Profuturo Group, FM Global, and RenaissanceRe.

BlackRock: A low-carbon transition

Both ETFs invest in large- and mid-cap companies with a focus on those companies that are likely winners from the transition to a low-carbon economy.

“The energy transition is central to all companies’ growth. Winners and losers will emerge in every sector based on each company’s ability to adapt, innovate and pivot their strategies toward the low-carbon economy,” said Larry Fink, Chairman and CEO of BlackRock. “Many of our clients share this conviction and we are helping them be at the forefront of the energy transition through next-generation climate analytics and sustainable strategies. We believe that this combination will lead to better outcomes for them and society as a whole.”

The ETFs rank companies on a “carbon transition readiness” score. A higher forecast of carbon reduction will result in a company being overweighted in the ETF relative to other rivals in the sector.

Investors will be rewarded with better returns because the carbon transition leaders will outperform over the long term.

“Better data and analytics have catalyzed climate investing. We are at a pivotal moment in the history of investing and it is now essential to incorporate climate risks and opportunities into asset allocations and portfolio management,” said Timo Sallinen, Head of Listed Securities, Varma Mutual Pension Insurance Company, in a statement.

“Our allocation to this strategy furthers CalSTRS’s goal to position our portfolios for the low-carbon transition,” said Chris Ailman, Chief Investment Officer at CalSTRS. “Identifying and supporting opportunities that move CalSTRS and the global economy to a low-carbon future helps ensure we can continue to provide a secure retirement for California’s educators.”

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