Lyxor Asset Management has introduced a new suite of equity ETFs for investors seeking alignment with climate-related carbon-reduction goals.
Arnaud Llinas, Head of Lyxor ETF & Indexing.
The Lyxor Paris-Aligned Climate ETFs are designed to deliver equity investment exposure with significantly reduced carbon footprints in accordance with the Paris Agreement – a global framework to avert dangerous climate change by limiting global warming to below 2°C.
The suite consists of four ETFs that focus on large- and mid-cap stocks within global developed, US, European, and eurozone equity markets.
They are linked to ‘EU Paris-
The Lyxor S&P Eurozone Paris-Aligned Climate (EU PAB) (DR) UCITS ETF (EPAB FP) has listed on Euronext Paris in euros and is expected to cross-list on Xetra later in July.
The Lyxor S&P 500 Paris-Aligned Climate (EU PAB) (DR) UCITS ETF will also list this month on Xetra and London Stock Exchange.
The Lyxor S&P Global Developed Paris-Aligned Climate (EU PAB) (DR) UCITS ETF and Lyxor S&P Europe Paris-Aligned Climate (EU PAB) (DR) UCITS ETF are expected to be rolled out in September.
Each fund comes with an expense ratio of 0.20%.
Methodology
The funds are linked to S&P Paris-Aligned Climate Indices from S&P Dow Jones Indices.
Index construction is based on the criteria of the EU’s Technical Expert Group on Sustainable Finance (TEG). The TEG sets out standards for companies reporting ESG-related disclosures as well as for the construction of climate benchmarks. Its framework aims to reduce the risk of ‘greenwashing’ – the process of conveying a false impression about how a company’s products are more environmentally sound.
Companies involved in controversial weapons and tobacco, embroiled in ESG controversies, or in violation of UN Global Compact principles are excluded. Additionally, companies with significant revenue exposure to the exploration or processing of coal, oil, and natural gas are also removed.
The methodology then uses data from Trucost, a business of S&P Global, to determine the carbon intensity of each remaining stock using greenhouse gas emissions for the entire value chain of that company.
An optimization process then reweights constituents so as to reduce the total carbon intensity of the index by 50%, instantly aligning it with the Paris Accord objective to cut emissions by 50% by 2030. The optimization process also seeks to minimize the deviations in constituent weights relative to the parent universe.
Furthermore, each index strives for at least a 7% annual decarbonization moving forward. These requirements may be adjusted according to new characteristics set out in future EU delegated acts.
Arnaud Llinas, Head of Lyxor ETF & Indexing, commented, “EU climate benchmarks are just one of the ways Europe is taking the lead on climate. At Lyxor, we believe in the power of indices and ETFs to build on data and shift capital at scale towards a climate-neutral economy. With this latest enhancement to our climate ETF ecosystem, we are helping investors take their decarbonization ambitions to the next level as well as adopting an even greener approach through fossil fuel exclusions.”
Reid Steadman, Global Head of ESG Indices at S&P Dow Jones Indices, added, “We are very pleased that Lyxor has selected our S&P Paris-Aligned Climate indices as the underlying benchmarks for its new exchange-traded funds. We’re proud to offer innovative and transparent indices in Europe and globally that help our clients navigate the transition to a low carbon economy, and capture both financial risks and opportunities.”
The Lyxor Paris-Aligned Climate ETFs represent the second suite of climate transition ETFs launched by Lyxor this year. The Lyxor Climate Change ETFs, which were unveiled in March, consist of four funds covering global developed, US, European, and emerging market equities. The ETFs are linked to MSCI Climate Change Indices that deliver an immediate 30% reduction in carbon intensity as well as ongoing decarbonization of 7% annually.