Lyxor Asset Management has expanded its range of sustainable fixed income funds with the launch of the world’s first ETF tracking green bonds from eurozone sovereign issuers.
François Millet, Head of ETF Strategy, ESG and Innovation at Lyxor Asset Management.
The Lyxor Euro Government Green Bond (DR) UCITS ETF has listed on Euronext Paris (ERTH FP) and Xetra (EAH GY) in euros and on London Stock Exchange in pound sterling (EART LN).
The fund comes with an expense ratio of 0.20% and has been brought to market with €50 million in assets.
Income is accumulated within the portfolio.
The ETF is linked to the Solactive Euro Government Green Bond Index which consists of euro-denominated eurozone government bonds that have an investment-grade rating, a minimum amount outstanding of €300 million, and at least one year remaining until maturity.
Eligible bonds must be labeled ‘green’ by the Climate Bonds Initiative, an investor-focused not-for-profit working to mobilize bond markets for climate change solutions.
The organization’s certification framework ensures that the proceeds raised from green bonds are directed to projects promoting environmental sustainability purposes and that ongoing transparency and reporting requirements are met.
The index provides exposure to bonds from five sovereign issuers: France (27.8%), Germany (20.9%), The Netherlands (20.0%), Belgium (19.2%), and Ireland (12.1%). Approximately 40% of the bonds in the index are rated AAA with the remaining 60% rated AA. The index is yielding 0.12% and has a modified duration of 12.6 years.
The Climate Bonds Initiative forecasts the overall green bond market, which reached $1.27 trillion in cumulated issuance globally last year, will expand by roughly 80% in 2021.
The sovereign green bond market in particular is poised for significant growth, boosted by the efforts of governments and the European Union to enhance net-zero objectives, step up climate action, and point stimulus plans towards a greener economy.
François Millet, Head of ETF Strategy, ESG, and Innovation at Lyxor Asset Management, said: “Until today, a strong and diversified sovereign segment was the missing link in the green bond market. We’ve now reached a point where any investor can and should have a green bond strategy as part of a fixed income portfolio. This launch will help investors pursue their net-zero carbon objectives by giving them more clarity on the use of proceeds of their investments, including in their core sovereign bond allocation.”
Lyxor pioneered the first green bond ETF in March 2017 with the launch of the Lyxor Green Bond UCITS ETF (CLIM FP). This fund, which provides exposure to euro- and US dollar-denominated green bonds globally, is currently the world’s largest green bond ETF with more than €570m in assets. It comes with an expense ratio of 0.25%.