iShares ESG Aware MSCI USA ETF (ESGU US) - Portfolio Construction Methodology

Core Insights - The iShares ESG Aware MSCI USA ETF (ESGU US) utilizes the MSCI USA Extended ESG Focus Index to create a portfolio that maximizes normalized ESG scores while adhering to a 0.5% predicted tracking-error budget [1] Portfolio Construction Methodology - The index excludes firms with severe controversies (ESG Controversies Score = 0) and those involved in Tobacco, Controversial Weapons, Civilian Firearms, Thermal Coal, and Oil Sands [1] - Security active weights are constrained to ±2% relative to the parent index, sector active weights to ±5%, and single-name weights to a maximum of 20 times the security's parent weight; the minimum constituent weight is set at 0.10% [1] - One-way turnover is limited to 10% during May/November reviews and 5% during February/August reviews [1] - The index undergoes quarterly reviews in February, May, August, and November, with monthly checks for controversies that may lead to deletions; additions are only made during reviews [1] - Final weights are adjusted based on free-float outputs from the Barra optimizer while maintaining a country/sector structure similar to the parent index [1]