BlackRock has launched a new fixed income ETF in Europe providing socially responsible exposure to euro-denominated corporate bonds while additionally adhering to the carbon reduction goals of the Paris Agreement.
The Paris Agreement seeks to limit global warming to 1.5 by 2050.
The iShares € Corp Bond ESG Paris-Aligned Climate UCITS ETF has been listed on Deutsche Börse Xetra in euros.
The fund, which has come to market with €50 million in initial assets, is available in both distributing (Ticker: CBUJ GY) and accumulating (IPAB GY) share classes.
The ETF is linked to the Bloomberg MSCI EUR Corporate Climate Paris Aligned ESG Select Index which begins its construction from an initial universe of investment-grade, fixed-rate corporate bonds denominated in euros with at least one year remaining until final maturity. Eligible issuers must have a minimum of €300m par outstanding.
The methodology first screens out proven violators of UN Global Compact principles, issuers embroiled in severe ESG-related controversies, and firms with business activities linked to weapons, tobacco, thermal coal, and oil & gas.
Issuers are then assigned ESG scores on a seven-point scale between AAA and CCC based on the most relevant ESG factors by industry and risk exposure. Those with the lowest two scores of CCC or B are removed from the selection pool
The remaining securities are then weighted using an optimization process that is designed to meet the requirement of an EU Paris-aligned benchmark (EU PAB). Specifically, the index achieves an instant 50% reduction in total carbon intensity relative to its parent universe and pursues an additional year-on-year decarbonization trajectory of at least 7% moving forward. These requirements align the index with a 1.5°C climate change scenario through 2050.
The optimization process also aims to deliver on a range of secondary objectives such as boosting the index’s overall ESG score by 20%, maximizing exposure to sustainable energy providers, increasing the weight of companies with clear carbon reduction targets, and minimizing fossil fuel exposure.
The index also seeks to limit deviations in sector and duration bucket exposures relative to the parent universe; however, these secondary objectives and constraints may be relaxed in order to ensure that the Paris-aligned objective is met.
The ETF comes with an expense ratio of 0.15% which is one basis point cheaper than the €40m Amundi iCPR Euro Corp Climate Paris Aligned PAB UCITS ETF (PABC GY). This fund similarly provides Paris-aligned exposure to investment-grade, euro-denominated corporate bonds by tracking the Solactive iCPR Climate Credit PAB Index.