German investment giant Deka has launched a new sustainability-focused fixed income ETF providing access to the corporate green bond market in Europe.
George Kayser, Head of ETF Institutional, Deka.
The Deka iBoxx MSCI ESG EUR Corporates Green Bond UCITS ETF (D6RE GY) has been listed on Deutsche Börse Xetra in euros.
The fund comes with an expense ratio of 0.25% and is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
The ETF is linked to the iBoxx MSCI ESG EUR Corporates Green Bond Select Index which consists of euro-denominated, investment-grade bonds from European corporate issuers.
Eligible bonds must be classified as ‘Green’ by the Climate Bonds Initiative, a not-for-profit working to mobilize bond markets for climate change solutions. The organization states that green bonds are “instruments in which the proceeds will be exclusively applied (either by specifying Use of Proceeds, Direct Project Exposure, or Securitization) towards new and existing Green Projects – defined here as projects and activities that promote climate or other environmental sustainability purposes.”
The group’s Climate Bond Standards take these principles a step further by creating a formal certification framework, which ensures that proceeds are only used for low-carbon, and climate-enhancing projects, and that ongoing transparency and reporting requirements are met.
Once eligible green bonds are identified for the index, a final screen is utilized to remove bonds from issuers that are proven violators of UN Global Compact principles as well as companies that are involved with the production of weapons. The index’s final composition consists of 90 bonds from 61 investment-grade issuers across Europe.
George Kayser, Head of ETF Institutional, Deka, said: “The time is right for a green bond ETF as the market is now mature – with many issuers, large issues, and a liquid secondary market. With our new ETF, we are giving investors the opportunity to invest in European green bonds in a diversified manner in order to support the decarbonization of the economy.”
The ETF will directly compete with the €170 million Xtrackers EUR Corporate Green Bond UCITS ETF (XGBE GY) which DWS introduced in July 2021. This fund also covers the European corporate green bond market and similarly comes with an expense ratio of 0.25%.
Investors seeking euro-denominated green bond exposure across multiple fixed income sectors may wish to investigate ETFs offered by BlackRock or Franklin Templeton – namely the €80m iShares € Green Bond UCITS ETF (GRON GY) and the €260m Franklin Euro Green Bond UCITS ETF (FLRG GY) which have expense ratios of 0.20% and 0.18%, respectively.