State Street Global Advisors (SSGA) has unveiled two new fixed income ETFs in Europe providing socially responsible exposure to euro and US dollar corporate bond markets.
Antoine Lesné, Head of EMEA Strategy & Research for SPDR in EMEA.
The SPDR Bloomberg SASB Euro Corporate ESG UCITS ETF (SPPR GY) has listed on Deutsche Börse Xetra, while the SPDR Bloomberg SASB US Corporate ESG UCITS ETF (SPPU GY) will launch on 26 October.
Both funds come with expense ratios of 0.15%.
The ETFs are linked to proprietary Bloomberg SASB Corporate ESG Ex-Controversies Select Indices which apply SSGA’s own environmental, social, and governance (ESG) criteria to Bloomberg’s flagship corporate bond index universes.
The parent indices consist of investment-grade bonds from corporate issuers operating in the industrial, utility, and financial sectors. Eligible issues must have at least one year remaining until maturity and at least €300 million, or $300m, in outstanding face value. Fixed-rate, zero-coupon, and step-up coupon bonds with predetermined payment schedules are all included.
The ESG methodology removes issuers that are embroiled in ESG-related controversies, and/or are adjudged to be violators of the UN Global Compact or involved with controversial weapons, civilian firearms, thermal coal extraction or tobacco production.
The issuers remaining are assigned ESG scores derived from SSGA’s R-Factor (Responsibility Factor) scoring system which measures the performance of a company’s business operations and governance as it relates to financially material ESG challenges facing the firm’s industry.
The process leverages multiple data sources and aligns the indices to the Sustainability Accounting Standards Board (SASB) ‘materiality map’, a framework based upon SASB’s accounting standards. SASB is a non-profit organization for ESG reporting and is supported by investors representing over $48 trillion in assets under management globally.
The indices then use an optimization process, run on a monthly basis, to reweight the constituents. The optimization aims to maximize the index’s ESG score while controlling for active risk by limiting deviations in option-adjusted duration and yield-to-worst as well as sector, credit rating bucket, and issuer weights.
According to SSGA, the process creates indices with significant ESG tilt that still maintain similar risk and return characteristics compared to their parent benchmarks.
Antoine Lesné, Head of Research & Strategy for SPDR in EMEA, commented, “With the launch of our two new investment-grade ESG-focused ETFs, we are providing investors with a new and innovative approach to positively screen in a transparent and ‘best in class’ way. By also providing a similar risk/return profile to the two broad parent indices, investors can use our new ETFs to complement their core asset allocation or use them as replacement strategies.”
Matteo Andreetto, Head of SPDR for EMEA, added, “Trends that have been bubbling under the surface for the last decade have now come to a head, making ESG a significant and central building block of a portfolio. In addition to this, large-scale wealth transfers from Boomers to their children, and a greater emphasis on living according to values, has encouraged ESG adoption. The investment industry is responding well to these trends, providing investors with more solutions to satisfy a growing appetite for ESG factors in portfolios.”