Franklin Templeton has expanded its suite of Paris-aligned equity ETFs with a new fund targeting Chinese stocks across all major types of share classes.

Caroline Baron, Head of ETF Business Development, EMEA, at Franklin Templeton.

The Franklin MSCI China Paris Aligned Climate UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: PABC LN) and pound sterling (CHPA LN) as well as on Deutsche Börse Xetra (FVCH GY) and Borsa Italiana (FRCP IM) in euros.

The fund, which is the first Paris-aligned Chinese equity ETF in Europe, obtains its exposure by tracking the MSCI China Climate Paris Aligned Net Total Return Index.

The index begins its construction from the parent MSCI China universe which covers large and mid-cap stocks across Chinese A-shares (currently represented at 20% of their free float-adjusted market capitalization), H shares, B shares, Red chips, P chips, and foreign listings.

MSCI’s ‘Climate Paris Aligned’ indices aim to maintain broad exposure to their parent universes while managing risks and pursuing opportunities arising from the transition to a low carbon economy.

The methodology first removes companies embroiled in severe ESG-related controversies as well as firms with business operations linked to weapons, tobacco, thermal coal, oil & gas, or oil sands.

The remaining securities are then weighted based on the risks and opportunities associated with the climate transition. MSCI harnesses a diverse range of data and analytical tools to aid in index construction including scope 1, 2, and 3 carbon emissions, green revenues, and the index provider’s own proprietary low carbon transition score and climate value-at-risk measures.

The index offers an immediate 50% reduction in weighted average carbon intensity relative to its parent universe as well as a further 10% annual decarbonization going forward, aligning with a trajectory to limit global warming to 1.5°C above pre-industrial levels by 2050.

In addition to the above primary objectives, the weighting process aims to achieve secondary objectives such as maximizing exposure to sustainable energy providers, increasing the weight of companies with clear carbon reduction targets, minimizing fossil fuel exposure, reducing climate value-at-risk by 50%, and maintaining a modest tracking error relative to the parent universe.

Due to the dedicated climate and sustainability approach, the ETF is classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).

The fund’s expense ratio is just 0.22% which is notably low for Chinese equities exposure – the cheapest China ETF in Europe is the $220m Franklin FTSE China UCITS ETF (FLXC LN) which costs 0.19%.

Franklin Templeton offers a further two Paris-aligned ETFs targeting US (based on the parent S&P 500) and European (STOXX Europe 600) equities. Collectively, the funds house around $130 million in assets.

Caroline Baron, Head of ETF Business Development, EMEA, at Franklin Templeton, commented: “We are delighted to add this new MSCI China Paris-Aligned Climate ETF at a competitive fee to our suite of Paris-Aligned Climate ETFs. The ETF provides exciting growth opportunities in Chinese stock markets by investing in securities transitioning to a low-carbon economy. Aligned with the EU Climate Benchmark Regulation, it will additionally offer investors key standardization, transparency, and reporting benefits and should appeal to a wide range of European investors seeking more sustainable investment solutions.”

Rafaelle Lennox, Vice President, Senior ETF Product Specialist at Franklin Templeton, added: “By starting with a key benchmark like MSCI China, investors can align their core China equity holdings to the Paris Climate Agreement and reduce their exposure to climate change risks and capture opportunities in the low carbon transition. Additionally, the Paris-Aligned indices have a broader ESG component with the exclusion of multiple factors like tobacco, fossil fuel producers, and violators of UN Global Compact principles, amongst other factors, thus creating a core sustainable solution.”

Julian Ide, Head of EMEA distribution at Franklin Templeton, said: “We are very pleased to add this MSCI China Paris-Aligned Climate ETF to our LibertyShares product suite. Franklin Templeton has been an early provider of smart beta Paris-Aligned Climate UCITS ETFs in Europe and this sustainable, competitively priced Article 9 ETF should enable European investors to align their portfolios with the decarbonization goals of the Paris Climate Agreement whilst tapping Chinese equity markets. China remains a key emerging market equity holding for our clients and an important player in the broader global green transition.”