Published by Ignites.

By Peter Ortiz March 12, 2012

ETF behemoth iShares has registered a new exchange-traded fund focused on screening out investments tied to human rights abuses.

The iShares Human Rights Index Fund aims to exclude companies with economic ties to a wide swath of human rights crimes, including acts resulting in death, torture, rape, slavery, forced labor and forced displacement of communities, according to the fund’s registration statement. It also explicitly excludes investments in Sudan, Iran and Burma.

iShares currently offers two SRI Index ETFs that focus on environmental, social and governance (ESG) characteristics, but this may be the first ETF available that targets genocide and other human rights abuses, according to sources.

An iShares spokeswoman declined to comment, citing the fund’s quiet period.

The iShares brand recognition and reach make its decision to register an SRI fund noteworthy, says Eric Cohen, chairman of Investors Against Genocide (IAG). “It’s one thing for a small SRI [firm] to have these offerings, but their reach is limited compared to the giants,” he says. “It’s nice to see that market is getting alternatives.”

iShares announced in 2009 that it was interested in creating a human rights–focused ETF. In fact, IAG had been in discussions with iShares’ then parent company, Barclays, about establishing such a fund two years prior to the announcement. Barclays wound up selling iShares to BlackRock in December 2009. Cohen’s group has targeted funds and pressured them to divest their holdings of oil company PetroChina, which has been linked to atrocities in Darfur, Sudan.

The new iShares fund will be tied to the Human Rights Custom Index on MSCI ACWI. It will hold only equity securities and will exclude companies that don’t meet the criteria of the MSCI ESG research data, in addition to excluding companies that fail its human rights investment mandate.

Cohen notes the similarities with the iShares Human Rights Index ETF and the iShares MSCI ACWI Index fund, which does not apply an SRI screen. The $2.3 billion MSCI ACWI Index fund was launched March 2008 and has a three-year track record of 11.97%. It also holds shares of PetroChina.

“In a few years you will be able to look back and see how the two funds compare in performance,” Cohen says, expressing confidence that investors will opt for the human rights fund over its similar non-SRI counterpart.

iShares’ SRI index funds — the MSCI KLD 400 Social Index Fund (DSI), launched in November 2006, and the MSCI USA ESG Select Social Index Fund (KLD), launched in January 2005 — have done well compared to the S&P 500. Over the last five years, DSI is down 1.2% and KLD is up 1.7%, says Robert Goldsborough, ETF analyst with Morningstar. That compares with the S&P 500 index, which was down 4.3% over the last five years, he says. KLD held $174 million, while DSI held $166 million.