UniCredit has announced the launch of the UC MSCI European Green Bond EUR UCITS ETF (ECBI GY), a new ETF providing exposure to a broadly diversified portfolio of liquid euro-denominated green bonds from European issuers.
The new ETF is the first to provide dedicated exposure to euro-denominated green bonds issued by European issuers.
Listed on Xetra, the fund enables sustainability-conscious investors to access bonds that have been issued to finance projects with direct positive environmental outcomes.
The fund achieves the desired exposure by tracking the Bloomberg Barclays MSCI European Green Bond Issuer Capped EUR Index, an index developed by Bloomberg Barclays and MSCI‘s ESG unit.
To be eligible for inclusion in the index, bonds must command an investment-grade rating and be issued by a government, supra-national or corporation from one of the following countries: Austria, Denmark, Finland, France, Germany, Italy, Lithuania, Netherlands, Norway, Poland, Spain, Sweden, and the United Kingdom.
Bonds do not necessarily need to be formally labelled as ‘green bonds’ to be eligible, but must pass an evaluation by MSCI that is based on four criteria in accordance MSCI’s Green Bond Principles. These criteria focus on the actual use of proceeds (within eligible environmental causes) as well as the existence of processes which ensure the correct allocation, management, and reporting related to the use of proceeds.
Eligible constituents must have a minimum par amount outstanding of €300 million, but need not necessarily have a minimum of one-year remaining until maturity (which is typical of many fixed income indices) and will be held until expiration. Individual issuer exposure is capped at 8%, while convertibles, preferred securities, inflation-linked debt, most municipal bonds, and floating-rate securities are all excluded.
Just over half (52.4%) of the index weight is currently allocated to bonds from supranational issuers with a further third (33.8%) in bonds from corporates and approximately 8% invested in government bonds.
The fund comes with a total expense ratio (TER) of 0.35%. Income is accumulated within the portfolio.
Antonio Keglevich, Head of Sustainability Bond Origination, UniCredit, commented, “Green bonds offer investors the possibility to invest easily in projects with direct relevance for environmental protection. Having the same risk and yield as common bonds, green bonds provide an added value, which exceeds financial aspects.”
Daniel Sailer, Vice President with responsibility for the GER/AT/CH Region at MSCI ESG, said: “The number of investors who aim to fight climate change by investing into green bonds has significantly increased. We are delighted to be working with UniCredit who licensed the Bloomberg Barclays MSCI European Green Bonds Index.”
He added, “The Bloomberg Barclays MSCI Green Bond Index family represents an objective and robust measure of the global market for fixed income securities issued to fund projects with direct environmental benefits.”
Lyxor is currently the only other ETF provider in Europe to offer a green bond ETF. The Lyxor Green Bond UCITS ETF (CLIM FP) launched on Euronext Paris in March 2017 and provides exposure to USD and EUR green bonds issued globally. The fund has approximately €50 million in assets under management and comes with a TER of 0.25%.
Investors may also wish to consider the recently unveiled UBS Sustainable Development Bank Bonds UCITS ETF. This fund from UBS Asset Management provides passive exposure to higher quality USD debt issued by development banks such as the World Bank and European Bank for Reconstruction and Development. Development banks are supranational institutions designed to finance projects with a positive social and economic impact in developing countries. The ETF’s TER is 0.18%.