BNP Paribas Asset Management has made changes to its headline French equity ETF – the €160 million BNP Paribas Easy CAC 40 UCITS ETF – which will see the fund replicate a new index aligned with environmental, social, and governance (ESG) criteria.
, Isabelle Bourcier, Head of Quantitative & Index Management at BNP Paribas Asset Management.
Effective immediately, the fund will switch from tracking the CAC 40 Index to the CAC 40 ESG Index, a new index launched by Euronext in March 2021.
The outgoing CAC 40 represents the performance of 40 of the most significant stocks among the 100 largest firms listed on Euronext Paris.
The incoming CAC 40 ESG Index is different in that it screens the parent CAC Large 60 Index, a reference for the 60 largest companies listed on Euronext Paris, to identify the 40 firms with the best ESG practices.
The ESG methodology is powered by V.E (Vigeo Eiris), part of Moody’s ESG Solutions.
The methodology first excludes violators of UN Global Compact principles as well as companies with operations linked to tobacco, coal, tar sands, oil shale, civilian firearms, and controversial weapons.
V.E then assigns an ESG rating to each remaining firm in the CAC Large 60 universe. The rating incorporates 38 metrics across six ESG categories: environment, human rights, human resources, community involvement, business behaviour, and corporate governance. A firm’s performance across all 38 metrics is combined to produce an overall score between 0 and 100.
The 40 constituents with the highest ESG ratings are initially selected as the prospective constituents of the index. This index is then evaluated to determine whether there has been an improvement in the weighted average carbon intensity and green-to-brown ratio (a measure of company revenue derived from ‘green’ products and services) compared to the parent universe. If either measure has deteriorated, the index will iteratively replace those securities with the lowest ESG scores with the next-eligible highest-ESG-scoring securities until both index measures have improved.
The final constituents are then weighted by float-adjusted market capitalization subject to an individual cap of 10%. Reconstitution and rebalancing occur on a quarterly basis with buffer rules helping to limit unnecessary turnover.
As of the end of June, the index’s largest sector exposures were clothing & accessories, pharmaceuticals, electrical components, cosmetics, and banks, each accounting for a weight between 8% and 10%. Notable positions included LVMH (9.9%), Sanofi (8.7%), L’Oréal (8.3%), Schneider Electric (6.3%), Air Liquide (6.1%), and BNP Paribas (5.3%).
To reflect the change of index, the fund has been renamed as the BNP Paribas Easy CAC 40 ESG UCITS ETF and is now classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
The ETF maintains its expense ratio of 0.25% as well as its ticker codes for euro-denominated listings on Euronext Paris (E40 FP) and Xetra (XEYX GY). Income is accumulated within the fund.
Isabelle Bourcier, Head of Quantitative & Index Management at BNP Paribas Asset Management, commented: “This launch is part of our long-standing sustainable investing DNA and is testament to our innovative approach. Our long-term strategic positioning within ESG ETFs enables us to meet growing investor demand, and we are proud to offer the first index fund on Euronext’s new CAC 40 ESG Index.”
Stéphane Boujnah, CEO and Chairman of the Management Board of Euronext, added: “Six months after the creation of the CAC 40 ESG Index, Euronext welcomes its adoption by BNP Paribas Asset Management. The launch of this first index fund replicating the CAC40 ESG Index reflects the growing interest of investors in ESG criteria. We welcome the key role of ESG indices in accelerating the transition to more responsible and sustainable growth.”
While BNP Paribas is the first to offer a CAC 40 ESG ETF, rival French issuer Amundi has also stated its intention to launch a similar product in the near future.