Lyxor has announced the launch of a new suite of equity ETFs in Europe aimed at investors who seek to integrate low carbon and climate change considerations into their portfolios.

The funds offer an immediate 30% reduction in carbon intensity as well as ongoing decarbonization of 7% annually.

The suite consists of four ETFs covering global developed, US, European, and emerging market equities.

The funds are linked to MSCI Climate Change indices that are aligned with both the goals of the Paris Agreement and the carbon emissions reduction targets of the European Union’s Technical Expert Group on Sustainable Finance.

Specifically, each index delivers an immediate 30% reduction in carbon intensity as well as ongoing decarbonization of 7% annually.

The first two ETFs in the suite – the US and EM funds – have listed tradeable in euros on Euronext Paris and are expected to cross-list on London Stock Exchange, in US dollars, on 7 April.

They are the Lyxor MSCI USA Climate Change UCITS ETF (CLUS FP; CLUS LN) and Lyxor MSCI EM Climate Change UCITS ETF (CLEM FP; CLEM LN) and come with expense ratios of 0.25% and 0.30% respectively.

The second pair in the suite, the Lyxor MSCI World Climate Change UCITS ETF (CLWD FP; CLWD LN) and Lyxor MSCI Europe Climate Change UCITS ETF (CLEU FP; CLEU LN), are to list at a later date. These funds will come with expense ratios of 0.30% and 0.25%, respectively.

Methodology

Each underlying MSCI Climate Change index is based on a parent broad market index that provides exposure to large- and mid-cap stocks and covers approximately 85% of the total capitalization within its designated universe. Specifically, the parent indices are the MSCI World, MSCI USA, MSCI Europe, and MSCI Emerging Markets indices.

Companies involved in controversial weapons, as well as those with insufficient reporting on their carbon emissions, are excluded.

The methodology then adjusts constituent weights to favour the industries and companies that are considered leaders in the transition to a low carbon economy while reducing exposure to those that are considered laggards.

Each constituent is assigned to one of five ‘Transition Categories’ that groups companies based on the predominant risks and opportunities they are most likely to face in the transition. For example, firms in the lowest category include those involved in coal mining and coal-based power generation, while those in the highest category include producers of renewable energy, electric vehicles, and solar cells.

Each company is also given a ‘Transition Score’ which is a multi-dimensional, industry-agnostic assessment of the firm’s position in the transition. It includes a company’s specific carbon intensity profile as well as the policies in place to mitigate transition risk.

The final weight of constituents in the Climate Change indices is determined by their weight in the parent index multiplied by their factor score, which in turn is determined by their Transition Score and the Transition Category they have been assigned to. The weight of any issuer is capped at 5%.

Arnaud Llinas, Head of Lyxor ETF & Indexing at Lyxor, commented, “By revising its investment benchmark regulations, the EU has assigned passive, rules-based investment managers a key role in the fight against climate change. ETF providers have the opportunity, and indeed the responsibility, to help shift the trillions by offering simple, transparent products which meet the requirements of the new regulation. Through the addition of this unique range, we are providing investors with yet more tools to achieve their climate goals.”