Norinchukin Zenkyoren Asset Management, the investment arm of the Japanese cooperative bank, is preparing to launch a new ETF providing broad, low carbon exposure to the country’s equity market.
The fund provides broad exposure to Japanese equities while weighting constituents in order to lower the overall carbon footprint.
The NZAM S&P/JPX Carbon Efficient Index ETF (2567 JP) is due to list on the Tokyo Stock Exchange on Friday, 11 September.
The fund is linked to the S&P/JPX Carbon Efficient Index which is based on the parent TOPIX Index, a leading reference for Japan’s equity market. The TOPIX consists of all domestically listed stocks on the First Section of the TSE.
The carbon footprint of each constituent is determined using analytics provided by Trucost, part of S&P Global. The metric used is carbon emissions per unit of revenue and is based on a firm’s direct as well as first-tier indirect discharges.
Companies that have not disclosed their carbon emissions are removed from the index pool.
The index maintains the same Global Industry Classification Standard (GICS) sector weights as the TOPIX as of each annual reconstitution and rebalance, while adjusting constituent weights within each sector to reduce its total emissions-per-revenue profile.
Constituents within each GICS sector are ranked by emissions-per-revenue and sorted into deciles. Constituents in the top three deciles have their weight reduced, while those in the bottom three deciles have their weight increased.
Additionally, each GICS sector is identified as either Low, Mid, or High Impact with High Impact sectors displaying the widest range between their first and tenth decile average emissions-per-revenue. Constituents from High Impact sectors that are undergoing a weight change will have that change multiplied by a factor of three, while constituents from Low Impact sectors that are undergoing a weight change will have that change multiplied by a factor of 0.5.
The largest sector exposures in the index are industrials (21.9%), consumer discretionary (17.0%), information technology (12.0%), health care (10.5%), and communication services (10.5%).
The index has displayed a similar risk-and-return profile compared to the TOPIX with the two indices broadly moving together over the past ten-year period.
The ETF will come with a management fee of just 0.12%, matching the cost of the MAXIS Carbon Efficient Japan Equity ETF (2560 JP) which launched in February and tracks the same S&P/JPX Carbon Efficient Index. The funds are currently the only two ETFs listed in Japan that specifically target low carbon equity exposure.
Socially responsible investing has become a central theme in asset management globally and is similarly gaining a lot of attention in Japan. Earlier this week, Nikko Asset Management launched the first ETF in Japan to provide responsible exposure to the real estate investment trust (REIT) market. The Listed Index Fund Nikkei ESG REIT (2566 JP) comes with a management fee of 0.15%.