Invesco has introduced a new suite of socially responsible equity ETFs in Europe that deliver meaningful improvements in overall ESG characteristics while also meeting specific climate objectives related to the Paris Agreement.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco.
The suite has launched with four funds providing sustainable core exposure to global developed, US, European, and Japanese stock markets with an emerging markets ETF due to be added at a later stage.
The ETFs are linked to ‘ESG Climate Paris-Aligned’ indices from MSCI which are based on some of the index provider’s best known regional and single-country benchmarks for global developed (MSCI World), US (MSCI USA), European (MSCI Europe), and Japanese (MSCI Japan) equities performance.
Each parent index comprises large and mid-cap stocks, covering approximately 85% of the total market capitalization of its targeted universe.
The index construction process begins by removing companies that are embroiled in severe ESG-related controversies or have business operations linked to any of several controversial industries including adult entertainment, gambling, alcohol, nuclear power, recreational cannabis, uranium mining, weapons, tobacco, thermal coal, oil & gas, and oil sands.
Constituents are also assigned an ESG score between AAA and CCC based on the most relevant ESG factors by industry and risk exposure. Firms with ratings below BBB (average) are also excluded.
The remaining securities are then weighted using an optimization process that is designed to meet the requirements of EU Paris-Aligned Benchmarks (PAB) while also pursuing opportunities arising from the transition to a low-carbon economy.
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 indices offer an immediate 50% reduction in weighted average carbon intensity as well as a further 10% annual decarbonization going forward, aligning with a trajectory to limit global warming to 1.5°C by 2050.
In addition to the above primary objectives, the indices aim 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 index.
Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, said: “As world leaders initiate plans to slow global warming, companies are key to success. They will need to reduce their carbon footprints while many will also create products and services to help us all improve ours. This new range of ETFs offers investors an efficient way to focus on companies with lower climate-related risks and positive exposure to the transition while meeting broader ESG objectives.”
Chris Mellor, Head of EMEA Equity and Commodity ETF Product Management at Invesco, added: “We believe these new ETFs offer investors truly differentiated core equity exposure. Responsible investors are not all the same, and we are creating a range of solutions to meet different objectives and investor priorities. These ETFs aim to strike a balance between specific climate and broader ESG objectives with a risk-return profile that most investors would expect from a core portfolio holding.”
The ETFs and their expense ratios are outlined below. Each fund has been classified as an Article 9 product under the European Union’s Sustainable Finance Disclosure Requirement (SFDR).
Invesco MSCI World ESG Climate Paris Aligned UCITS ETF (PAWD LN); 0.19%
Invesco MSCI USA ESG Climate Paris Aligned UCITS ETF (PAUS LN); 0.09%
Invesco MSCI Europe ESG Climate Paris Aligned UCITS ETF (PAES LN); 0.16%
Invesco MSCI Japan ESG Climate Paris Aligned UCITS ETF (PAJP LN); 0.19%