French banking and investment giant BNP Paribas has launched a new socially responsible equity ETF providing exposure to stocks with strong environmental, social, and governance (ESG) characteristics from developed market eurozone countries.
BNP Paribas now offers six ETFs linked to MSCI SRI issued capped indices.
The BNP Paribas Easy MSCI EMU SRI S-Series 5% Capped UCITS ETF (MUSRI FP) has debuted on Euronext Paris with further listings pending on Xetra and Borsa Italiana.
It comes with an expense ratio of 0.30%.
The fund is linked to the MSCI EMU SRI S-Series 5% Capped Index which selected its stocks from the parent MSCI EMU Index, a reference for large and mid-cap representation across ten developed market countries in the European Economic and Monetary Union (EMU).
Constituent selection is based on data from MSCI ESG Research, the world’s largest provider of ESG ratings.
The methodology first excludes companies involved in nuclear power, tobacco, alcohol, gambling, military weapons, civilian firearms, GMOs, and adult entertainment. The remaining constituents are then assigned an ESG rating which indicates its ability to deal with ESG risks relative to sector peers. Firms with ratings below average are excluded.
The process then seeks to form a best-in-class index with risk characteristics that are similar to the parent universe. It does this by selecting companies from each sector with the highest ESG ratings that make up approximately 25% of the total market capitalization of that sector. Stocks are weighted by free float-adjusted market capitalization, subject to a 5% cap.
The SRI index has 59 constituents compared to 247 for the parent index. France and Germany account for the largest country exposures with weights of 34.2% and 29.5%, respectively, followed by The Netherlands (10.1%), Spain (9.4%), and Italy (5.1%). The largest sectors are financials (21.5%), consumer staples (15.7%), industrials (12.8%), consumer discretionary (12.4%), and information technology (10.1%).
The 5% cap is aimed at enhancing diversification at the stock level by reducing the outsized weight of certain mega-cap firms. Companies that have had their weight curtailed include Total (which has an 8.4% weight in the non-capped MSCI EMU SRI Index), SAP (7.8%), ASML Holding (7.1%), Allianz (6.7%), and Siemens (5.5%).
The launch brings the number of BNP Paribas ETFs based on MSCI SRI 5% issuer capped indices to six. The other funds in the suite provide exposure to global developed, US, European, Japanese, and emerging market equities.
Fellow French asset manager Amundi also offers ETFs linked to MSCI SRI indices. The firm recently shifted its suite to 5% issuer capped indices based on feedback from clients. The funds cover the global, US, European, and emerging market equity universes.