DWS has introduced an ESG global government bond ETF in Europe based on a comprehensive country assessment and weighting framework developed by FTSE Russell.
DWS has partnered with FTSE Russell to launch an ESG-enhanced global govies ETF
The Xtrackers ESG Global Government Bond ETF has been listed on the London Stock Exchange with US dollar (Ticker: XZWG LN), USD-hedged (XZUD LN) and GBP-hedged (XZWS LN) share classes, and on Deutsche Börse Xetra with euro (XZWG GY) and EUR-hedged (XZEG GY) share classes.
It is linked to the FTSE ESG Select World Government Bond Index – Developed Markets which covers fixed-rate, local currency, investment-grade sovereign bonds from developed market countries.
The index provides broad exposure across the yield curve, including bonds that have more than one year remaining until final maturity.
Each country in the index is assigned an overall environmental, social, and governance (ESG) score based on an in-depth assessment drawing upon 41 indicators across the three core ESG pillars.
With reference to environmental performance, countries are assessed on energy, climate, and resources sub-factors; for social performance, countries are assessed on inequality, employment, human capital, health, and societal wellbeing; and for governance performance, countries are assessed on corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability.
Any country with an overall ESG score that ranks in the bottom 15% of the FTSE WGBI (FTSE Russell’s broad global government bond index that covers both developed and emerging markets) is removed.
The index then starts with the market capitalization weights of the remaining countries before using the ESG scores to tilt towards countries with superior ESG profiles and away from countries with inferior ESG profiles.
The index is rebalanced on a monthly basis.
As of 8 December, the ETF was primarily invested in bonds issued by the US government (28.1%) with the next-largest country exposures being Germany (17.3%), France (14.9%), the UK (11.3%), and the Netherlands (4.0%).
The average credit rating of bonds in the fund was AA+. It was yielding 0.74% with an effective duration of 9.28 years.
The ETF comes with an expense ratio of 0.20% for unhedged share classes and 0.25% for currency-hedged share classes. It is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Requirement (SFDR).
Commenting on the launch, Simon Klein, Global Head of Passive Sales at DWS, said: “The new Xtrackers ESG Global Government Bond ETF aims to provide enhanced ESG characteristics while maintaining attractive risk-adjusted performance metrics. The goal is to provide a depth of analysis that moves the market forward in terms of providing intelligent and nuanced ESG exposure. With this addition to our ETF suite, investors now have a diverse range of Xtrackers ESG exposures they can use, across equities and fixed income.”
There are two other ETFs in Europe offering ESG-enhanced exposure to global government bonds. These include the $380m UBS ETF – JP Morgan Global Government ESG Liquid Bond UCITS ETF, which launched in October 2019 and comes with an expense ratio of 0.15%, and the $880m BNP Paribas Easy JPM ESG EMBI Global Diversified Composite UCITS ETF, which launched in February 2021 and costs 0.25%.