Exchange traded fund provider iShares has unveiled a new ETF tracking an index of short-term, euro-denominated corporate bonds. The iShares Euro Corporate Bond Sustainability Screened 0-3yr UCITS ETF (SUSE) tracks the Barclays MSCI Euro Corporate 0-3 year Sustainability ex-Controversial Weapons Index, and marks iShares’ first venture into the issuance of sustainable bond ETFs.
The iShares Euro Corporate Bond Sustainability Screened 0-3yr UCITS ETF (SUSE) invests in short-term, euro-denominated corporate bonds from issuers across Europe, North America and Asia Pacific with an MSCI ESG rating of BBB or above.
The bonds are issued by companies with environmental, social and corporate governance (ESG) ratings of BBB or above, as determined by MSCI. Sustainable investing has been one of the major themes in the investment landscape over the past few years. According to research from BlackRock, global assets under management in the socially responsible category grew by 61% between 2012 and 2014 to $21.4tn. Driving these flows is an increasing body of research suggesting that investor’s risk/return profiles may be enhanced through the adoption of ESG-favourable tilts within their portfolios. Current theory points to a reduced level of operational and reputational risk of companies with high ESG scores as a major contributing factor to better performance.
Hannah Skeates, iShares Global Head of Sustainable Investments at BlackRock, commented: “Sustainable investing is going mainstream and it is no longer a niche pursuit. Investors are placing greater emphasis on transparency and the ESG practices of companies, regardless of whether they are investing in the company’s equity or debt. ETFs are one of the investment products of choice because they are easy to use and investors can see the process and methodology in selecting social and environmental characteristics, all implemented in a single trade.”
According to MSCI’s ESG rating methodology, the three pillars of the environmental, social, and corporate governance framework, can be divided into 10 major themes (climate change, natural resources, pollution & waste, environmental opportunities, human capital, product liability, stakeholder opposition, social opportunities, corporate governance, and corporate behaviour). These may then be further separated into a total of 37 key ESG issues potentially resulting in future internalised liability by firms which score low in these subjects. Each company undergoes an identical evaluation of its corporate governance structure, which looks at key issues on environmental and social pillars, which are weighted according to the breakdown of core products and business segments. This methodology provides an individualised, relevant analysis of each firm’s ESG business practices. Companies are also assigned a rating between AAA (most favourable) and CCC (least favourable).
The index excludes debt from companies with operations in controversial weapons, including cluster bombs, land mines, chemical weapons and biological weapons. Bonds relevant for final inclusion in the index may be drawn from corporates listed across Europe, the Americas and Asia Pacific.
The iShares Euro Corporate Bond Sustainability Screened 0-3yr UCITS ETF joins the firm’s existing range of socially responsible products that includes active funds, index funds and ETFs.
The fund carries a total expense ratio of 0.25%.