BNP Paribas Asset Management has launched a new type of environmental, social, and governance (ESG) ETF that invests in companies that ascribe to the so-called ‘circular economy’ business model.
BNP Paribas has launched a global ‘circular economy’ ETF in Euronext Paris.
The fund is the BNP Paribas Easy ECPI Circular Economy Leaders UCITS ETF and it has been listed on Euronext Paris with the appropriately named ticker, REUSE FP.
A circular economy aims to keep resources in use for as long as possible, extracting the maximum value from them whilst in use, before recovering and regenerating products and materials at the end of each service life.
The system contrasts to the traditional linear economy where resources and products are disposed of once they have been used.
This difference in approach is often characterised by proponents as “Reduce-Reuse-Recycle” versus “Take-Make-Dispose”.
The fund is linked to the ECPI Circular Economy Leaders Equity Index, an index created by Milan-headquartered ESG indexing and research group ECPI.
The index selects constituents from the universe of global developed market stocks with market capitalizations greater than €500 million and average daily traded values of at least €5m. Companies involved in armaments or tobacco production are removed.
The index selection process screens the remaining universe according to ECPI’s proprietary ranking methodology which considers key ESG issues faced by firms relative to their industry. Companies that do not receive a positive rating are eliminated. The universe is further screened to include only those firms that ECPI has determined operate with a circular economy business model, typically fitting into one of the following five themes: circular supplies; resource recovery; product life extension; sharing platforms; and product as a service.
The 50 largest stocks are selected to form the final index while accounting for sector constraints to limit deviations relative to the universe. The index is equally weighted and rebalanced semi-annually in January and July.
Over half (55.3%) of the index is exposed to stocks listed in the US with the next largest country exposures being Japan (15.1%), France (13.0%) and The Netherlands (4.5%). Index weights are fairly evenly distributed between the information technology (23.1%), consumer discretionary (21.9%), consumer staples (19.7%), and industrials (19.1%) sectors.
The ETF comes with an expense ratio of 0.30%.
Commenting on the launch, Robert-Alexandre Poujade, ESG Analyst at BNP Paribas Asset Management’s Sustainability Centre, said, “The realisation of the environmental impacts of their economic models, as well as evolving regulations in terms of resource conservation have pushed companies to adopt alternative development strategies after a more virtuous model. Our analysts are studying companies’ capacities to anticipate these changes and are engaging with them to encourage them to adopt these more sustainable models.”
Isabelle Bourcier, Head of Quantitative and Index Management at BNP Paribas Asset Management, added, “BNPP is one of the three most important ESG ETF providers in Europe; a theme that is at the core of our strategy and that is of additional value to our customers. As the first asset manager to launch a low carbon ETF in over 10 years, our ambition is to expand our BNP Paribas Easy product range on ESG indexes, as well as to innovate in as-yet under-explored fields. Launching this ETF on the principle of the ‘circular economy’ is fully in line with our ambition.”