State Street Global Advisors is preparing to introduce the first US-listed global equity ETF that is aligned with the carbon reduction goals of the Paris Agreement.

Paris-aligned ETFs are aligned with a trajectory to limit global warming to 1.5°C by 2050.

The SPDR MSCI ACWI Climate Paris Aligned ETF (NZAC US) will be available to trade on The Nasdaq Stock Market from 22 April 2022.

The fund is being created by repurposing the SPDR MSCI ACWI Low Carbon Target ETF (LOWC US) which currently houses around $110 million in assets.

Following the transition, the ETF will switch from tracking the MSCI ACWI Low Carbon Target Index and will begin to reference the performance of the MSCI ACWI Climate Paris Aligned Index.

The outgoing index also provides broad global equity exposure while seeking to manage risks associated with the transition to a low carbon economy. Specifically, the index overweights companies with low carbon emission profiles and underweights those with high carbon emissions profiles while maintaining a tracking error within 0.30% of the parent MSCI ACWI Index.

The incoming index is also based on the MSCI ACWI, a broad reference covering large and mid-cap stocks across 23 developed market and 25 emerging markets countries, and also seeks to reduce exposure to climate transition risks.

It goes further, however, by pursuing opportunities arising from the transition to a low carbon economy and exceeding the minimum standards of EU Paris-Aligned benchmarks.

The methodology first removes companies from the MSCI ACWI that are embroiled in severe ESG-related controversies or have business operations linked to weapons, tobacco, thermal coal, oil & gas, and oil sands.

The index then reweights the remaining securities based on the risks and opportunities associated with the climate transition. MSCI harnesses a diverse range of data and analytical tools to aid in index construction including scope 1, 2, and 3 carbon emissions, green revenues, and the index provider’s own proprietary low carbon transition score and climate value-at-risk measures.

The index offers an immediate 50% reduction in weighted average carbon intensity as well as a further 10% annual decarbonization going forward, aligning with a trajectory to limit global warming to 1.5°C by 2050.

In addition to the above primary objectives, the index aims to achieve secondary objectives such as maximizing exposure to sustainable energy providers, increasing the weight of companies with clear carbon reduction targets, minimizing fossil fuel exposure, reducing climate value-at-risk by 50%, and maintaining a modest tracking error relative to the parent index.

The ETF’s expense ratio will remain unchanged at 0.20%.

The fund will be the third ETF in the US to explicitly follow a Paris-Aligned investment mandate following the December 2021 launch of the Goldman Sachs ActiveBeta Paris-Aligned Climate US Large Cap Equity ETF (GPAL US) and the February 2022 launch of the iShares Paris-Aligned Climate MSCI USA ETF (PABU US). Both of these ETFs focus on the US equity market.