Lyxor has expanded its green bond offering with the launch of the Lyxor Green Bond ESG Screened (DR) UCITS ETF (XCO2 GY).
Lyxor has launched its second fixed income ETF to focus on the investment-grade green bond market.
The fund, which has been listed on Xetra, is Lyxor’s second ETF to focus on the investment-grade green bond market.
It differs from the firm’s debut green bond ETF, the €132m Lyxor Green Bond UCITS ETF (CLIM LN), by incorporating an environmental, social, and governance (ESG) screen.
The fund tracks the Solactive Green ESG Bond EUR USD IG TR Index through physical replication using a sampling technique.
The index universe comprises all USD and EUR denominated investment-grade bonds from sovereign, supranational, development banks, and corporates that have been defined as ‘green’ by the Climate Bonds Initiative, a not-for-profit organisation working to promote the use of bond markets to tackle climate change.
Green bonds are defined as debt instruments in which the proceeds are exclusively applied (either by specifying use of proceeds, direct project exposure, or securitization) towards new and existing projects that promote climate or other environmental sustainability purposes.
To be included in the index, bonds must have at least €300m (EUR denominated bonds) or $300m (USD denominated bonds) outstanding with time to maturity of at least 12 months. Floating-rate notes, inflation-linked bonds, convertible bonds, and municipal bonds are excluded from potential selection.
The index construction process then incorporates an exclusionary screen based on insights from ESG analytics firm Sustainalytics. Bonds issued by firms that are in violation of any of the ten principles of the UN Global Compact relating to human rights, labour, the environment, and corruption are excluded, as are bonds issued by firms with operations in controversial sectors such as tobacco, alcohol, weapons, nuclear energy, and fossil fuels.
The bonds that pass through this process are then weighted by market value outstanding subject to caps of 5% and 10% on corporate and government issuers, respectively.
The ETF comes with an expense ratio of 0.25%. Income is capitalised within the fund.