• Indian equities playing an increasingly important role in emerging markets, global and multi-asset portfolios with the nation’s weighting in the MSCI EM Index nearly doubling to 15% in two years.
   
• As the world’s third-largest emitter of greenhouse gases [1], India’s climate adaptation and mitigation ambitions are not just transformational for India but for the entire planet.
   
• The iShares MSCI India Climate Transition ETF is the first-of-its-kind sustainable ETF whose portfolio decarbonizes over time while providing exposure to issuers with better ESG credentials. 
   

The Case for Indian Equities

Indian equities are in the spotlight with the nation’s benchmarks outperforming their global peers over the past two years.

While the S&P 500 index and China’s CSI 300 have dropped 19% and 29%, respectively this year, MSCI India is down only 7%, with rising demand among local investors offsetting foreign portfolio outflows. Indian equities also accounted for 16% of the MSCI EM Index as of October 30, 2022 compared with 8% two years ago [2].

With India’s economy expected to be a rare silver lining in what is looking to be an otherwise gloomy 2023 (Source Bloomberg Economist Forecast), Indian equities may ultimately lure global investors back too.  The IMF projects the third largest Asian economy to expand 6.8% in FY 2023, while the U.S. is expected to slow down and China struggles to revive its economy.

Over the medium term, BlackRock Investment Institute sees India as a large, increasingly liquid and investible Asian market with unique domestic dynamics at play that global investor should look to get access to in portfolios. In a note in September, it pointed to the nation’s “unique” domestic dynamics and factors such as a more efficient tax regime and a gradual shift towards more productive, formal-sector jobs from informal sectors as key positives. [3]
 

India’s Climate Transition – a Historic Investment Opportunity

Despite the positive economic outlook, climate risk is meaningful to India’s investment case. India still relies on fossil fuels for 80% of its power needs and is expected to see the largest increase in energy demand of any country over the next 20 years.  In the meantime, heatwaves and other extreme weather events attributed to climate risk have already caused significant damage to life, crops and property.

India now faces the important task of tackling the physical climate risks and decarbonizing its infrastructure while providing sustainable livelihoods and lifting millions out of poverty. 

In 2021, India’s Prime Minister Narendra Modi announced that the nation’s ambition is to reach net zero emissions by 2070. India also committed to meeting half of its energy demands from renewable sources such as solar and wind and reducing the emissions intensity of its GDP by 45% from its 2005 level - all by 2030, while achieving the 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030. [4]

Investing in India’s transition to a low-carbon economy represents a historic opportunity. To reach net zero emissions by 2070, the IEA estimates that $160 billion a year is needed annually across India’s energy economy between now and 2030 as the country will have to add a power system the size of the European Union to what it has now. That’s three times today’s investment levels. [5]
 

The iShares MSCI India Climate Transition ETF - the first-of-its-kind sustainable ETF for Indian equities

At such a juncture, iShares MSCI India Index ETF (I98 SP) will be going through a set of enhancements to help investors take into consideration climate risk as part of their investments into Indian equities:

• The ETF will start tracking the MSCI India ESG Enhanced Focus CTB Select Index with effect from Nov. 30. The new index is a Climate Transition Benchmark.
   
• Its name will also change to iShares MSCI India Climate Transition ETF and will become the first sustainable ETF with a climate objective based on Indian equities.
   
• The management fee is reduced to 65bps from 99bps [6].
   

Trading Specifications of iShares MSCI India Climate Transition ETF

A note on Climate Transition Benchmarks:  Climate Transition Benchmarks are indices of equities or corporate bonds which aim to assist in meeting the decarbonization objectives set by the European Union’s Sustainable Finance Action Plan. They aim to promote sustainable investment in companies that are helping to combat global warming, principally by cutting greenhouse gas emissions. A Climate Transition Benchmark incorporates specific objectives related to emission reductions and the transition to a low-carbon economy, based on the scientific evidence of the Intergovernmental Panel on Climate Change, through the selection and weighting of underlying constituents. At least a 30% reduction in carbon versus the investable universe is required, followed by a 7% year-on-year decarbonization thereafter.
 

[1] Source: https://essd.copernicus.org/articles/12/3269/2020/ as of 122020

[2] Source: Bloomberg, MSCI Data as of 102022

[3] Source: https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/asia-insights as of 092022

[4] Source: https://unfccc.int/sites/default/files/NDC/2022-08/India%20Updated%20First%20Nationally%20Determined%20Contrib.pdf

[5] Source: https://www.iea.org/commentaries/india-s-clean-energy-transition-is-rapidly-underway-benefiting-the-entire-world as of 012022

[6] Source: https://apac-retail01-prodigy.muse2.cwp-prod-cloud-origin.blackrock.com/sg-one/en/literature/shareholder-letters/20221031-ishares-msci-india-index-etf-announcement.pdf.pdf as of 102022