Fidelity International has launched a new fixed income ETF in Europe providing climate-friendly exposure to a broad portfolio of local currency government bonds issued globally.
Fidelity has launched a global sovereign bond ETF in Europe tailored for climate-conscious investors.
The Fidelity Global Government Bond Climate Aware UCITS ETF has been designed to deliver an immediate improvement in carbon emissions profile compared to similar market cap-weighted benchmarks as well as maintain a further decarbonization trajectory each year.
The fund has been listed on London Stock Exchange in US dollars (FGGB LN) and pound sterling (FGGP LN), on SIX Swiss Exchange in US dollars (FGGB SW), and on Deutsche Börse Xetra (FFGG GY) and Borsa Italiana (FGGB IM) in euros.
It comes with an expense ratio of 0.20% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
Methodology
The ETF is linked to the Solactive Paris Aware Global Government Bond Index which consists of sovereign bonds from developed and emerging market countries that have investment-grade credit ratings.
The index utilizes an optimization process to determine the weights of individual countries such that there is an immediate reduction in weighted average carbon emissions (based on Scope 1, 2, and 3 emissions) of at least 14% compared to the initial universe as well as a further 7% annual decarbonization going forward.
The optimization also seeks to limit the increase in any country’s weight to 1.5x its weight in the initial universe (or a maximum 20% absolute increase) or limit the reduction in any country’s weight to 0.5x its initial weight (also to a maximum 20% absolute decrease). These secondary objectives may, however, be relaxed to ensure that the primary objective of reducing carbon intensity is met.
Once the country weights have been determined, the methodology sets the index’s effective duration equal to the duration of the initial universe. This is done in such a way as to further reduce overall carbon intensity: if the optimized index has a higher effective duration than the initial universe, the duration contribution of higher-polluting countries is reduced; similarly, if the optimized index has a lower effective duration than the initial universe, the duration contribution of the more climate-friendly countries is increased.
The index is rebalanced on a monthly basis.
Fidelity offers a further two climate-tailored fixed income ETFs which provide actively managed exposure to investment-grade and high yield corporate bond markets globally. The $850 million Fidelity Sustainable Global Corporate Bond Multifactor UCITS ETF (FSMF LN) and $70m Fidelity Sustainable Global High Yield Bond Paris-Aligned Multifactor UCITS ETF (FHYP LN) come with expense ratios of 0.25% and 0.35%, respectively.
Both funds select their constituents based on a proprietary multifactor credit model combined with integrated sustainability criteria. The chosen issuers are then weighted so as to achieve an immediate 50% reduction in weighted average carbon intensity versus the initial universe as well as a further 7% annual decarbonization going forward.