Lyxor has reduced the fees on a pair of equity ETFs that are aligned with the carbon-reduction goals of the Paris Agreement.
The Paris Agreement sets out a framework for averting dangerous climate change by limiting global warming to below 2°C.
The $200 million Lyxor Net Zero 2050 S&P 500 Climate PAB (DR) UCITS ETF (PABU LN) has had its expense ratio cut from 0.20% to 0.07%, while the $50m Lyxor Net Zero 2050 S&P Europe Climate PAB (DR) UCITS ETF (RPAB LN) has been trimmed from 0.20% to 0.18%.
Lyxor was the first to offer so-called ‘Paris-aligned’ ETFs in Europe – its suite, which also includes global developed and eurozone equity funds, has grown to over $1.2 billion in assets since debuting in July 2020.
A number of other issuers have since entered the space, however, with Amundi, Franklin Templeton, UBS, and BlackRock all launching competing products.
Following the fee cuts, the Lyxor Net Zero 2050 S&P 500 Climate PAB (DR) UCITS ETF now offers the cheapest Paris-aligned US equity exposure amongst comparable funds.
The Lyxor Net Zero 2050 S&P Europe Climate PAB (DR) UCITS ETF, meanwhile, matches the cost of comparable ETFs offered by Amundi and UBS. The $10m Franklin STOXX Europe 600 Paris Aligned Climate UCITS ETF (EUPA LN) is the lowest-cost product in this group with an expense ratio of 0.15%.
Methodology
Paris-aligned ETFs are designed to deliver exposure analogous to the standard parent benchmark but with a significantly reduced carbon footprint, in line with the Paris Agreement’s objective of averting dangerous climate change by limiting global warming to less than 2°C above pre-industrial levels.
Lyxor’s Paris-aligned ETFs achieve this profile by tracking S&P Paris-Aligned Climate Indices from S&P Dow Jones Indices – the US and European S&P Paris-Aligned Climate Indices are based on the S&P 500 and S&P Europe parent universes, respectively.
Companies involved in controversial weapons and tobacco, embroiled in ESG controversies, or in violation of UN Global Compact principles are excluded. Companies with significant revenue exposure to the exploration or processing of coal, oil, and natural gas are also removed.
The methodology then uses data from Trucost, a business of S&P Global, to determine the carbon intensity of each remaining stock using greenhouse gas emissions for the entire value chain of that company.
An optimization process reweights constituents so as to reduce the total carbon intensity of each index by 50%, instantly aligning it with the Paris Accord objective to cut emissions by 50% by 2030, while also striving for at least a 7% annual decarbonization moving forward. The optimization process simultaneously seeks to achieve these objectives while minimizing deviations in constituent weights relative to the parent universes.