SPDR : SSGA announced the launch of the SPDR STOXX Europe 600 ESG Screened UCITS ETF…...
Rebecca Chesworth, Senior Equity Strategist at SPDR
The fund is the first ESG ETF strategy based on STOXX Europe 600 that follows transparent exclusion criteria.
It aims to eliminate exposure to controversial weapons, tobacco and thermal coal, and companies that do not comply with United Nations Global Compact (UNGC) principles.
The fund lists on Xetra [ZPDX: GY], Borsa Italiana [600X: IM] and Euronext [600X: NA] from 30 September 2019.
The STOXX Europe 600 index, a key benchmark for pan-European exposure, represents large, mid and small capitalisation companies across 17 countries in the European region*.
The STOXX 600 ESG-X index (launched in 2018) adopts exclusion criteria based on data from Sustainalytics – a leading ESG ratings provider that screens stocks based on the responsible policies of leading asset owners and aims to reduce reputational and idiosyncratic risks.
The ETF, which has a TER of 0.12 percent, also has a ‘Fast Exit’ feature to react quickly to breaking ESG controversies. If an index constituent has its Sustainalytics controversy risk rating raised to Level 5 (high risk), it will be deleted from the index two dissemination days after the announcement is made.
Rebecca Chesworth, Senior Equity Strategist at SPDR, said: “No longer considered a niche option, sustainable investing is now one of the fastest growing areas of ETF product development in Europe and the ESG ETF landscape is evolving quickly in response to investor demand for ESG inclusion.
“Given this backdrop, we believe demand for ESG ETFs is set to increase. Despite the fact that firms controlling nearly $90 trillion of AUM globally have committed to the incorporation of ESG into processes by signing up to the UN’s Principles for Responsible Investment (PRI), only an estimated 20 percent of that figure fit ESG criteria**. However, this is set to increase rapidly as the requirements of being a signatory, such as disclosure on climate risk indicators, are tightened from 2020.”
Mandy Chiu, Head of ETF Product for EMEA and APAC, added:
“As fund innovation responds to new capabilities and investor demands, we expect a broader ETF offering to develop. At the end of January 2019, there were 210 ESG classified ETFs/ETPs.***
With a growing body of academic research showing a positive relationship between high ESG scores and performance, we expect the number of ESG ETFs to rise as Europe continues to lead the way in ESG thinking.”
The resulting portfolio of stocks in the new SPDR ETF has a low tracking error (0.48 percent annualised over the last five years) and similar performance characteristics to the STOXX Europe 600 index.
The active weight by sector is less than 2 percent in all cases (the largest being Health Care at -1.68 percent, followed by Financials at +1.32 percent).
A total of 19 stocks are currently excluded for meeting one or other of the four criteria.
The top 10 largest exclusions are:
|Company Name||Exclusion Category||STOXX Europe 600 Weight (%)|
|NOVARTIS||UN Global Compact||2.52%|
|BRITISH AMERICAN TOBACCO||Tobacco||0.90%|
|VOLKSWAGEN PREF||UN Global Compact||0.33%|
|BAE SYSTEMS||Controversial Weapons||0.23%|
|ROLLS ROYCE HLDG||Controversial Weapons||0.22%|
|ATLANTIA||UN Global Compact||0.13%|
Source: STOXX, as of 31 July 2019.
* Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
** Source: Will Values-Based Investing Ever Take Off?, Barron’s, June 2019.
*** ETFGI’s January 2019 ETF and ETP ESG industry landscape insights report