State Street Global Advisors (SSGA) has launched a new ETF in Europe, the SPDR STOXX Europe 600 ESG Screened UCITS ETF, providing broad exposure to European developed market equities while incorporating consideration of environmental, social, and governance (ESG) factors.

Rebecca Chesworth, Senior Equity Strategist at SPDR ETFs.
The fund has listed on Xetra (ZPDX GY), Borsa Italiana (600X IM), and Euronext Amsterdam (600X NA) and is linked to the STOXX Europe 600 ESG-X Index.
It is the first ESG ETF based on the STOXX Europe 600 universe of large, mid, and small-cap companies from 17 European developed market countries.
The underlying index harnesses insights from ESG analytics firm Sustainalytics to screen the parent universe to exclude companies with poor ESG credentials.
The index construction process first excludes firms deriving any revenue from controversial weapons or tobacco as well as companies that derive more than 25% of their revenue from thermal coal extraction or power generation related to thermal coal. Companies that Sustainalytics considers to be non-compliant with the UN’s Global Compact Principles – a set of core values in the areas of human rights, labour standards, the environment, and anti-corruption – are also excluded.
The remaining constituents are then weighted by free-float-adjusted market capitalization subject to an individual security cap of 20%.
Reconstitution and rebalancing occur quarterly, although the index also contains a ‘fast exit’ feature that enables it to react quickly to breaking ESG controversies by removing non-compliant constituents within two days.
According to SSGA, the index shows a risk-return profile similar to the broad European equity market while offering investors a solution that is aligned with responsible investment policies.
A total of 19 stocks are currently excluded from the parent STOXX Europe 600 universe. The largest of these are Novartis (2.5%), British American Tobacco (0.9%), Airbus (0.9%), and Safran (0.6%). Its annualized tracking error is just 0.48%.
Rebecca Chesworth, Senior Equity Strategist at SPDR ETFs, commented, “No longer considered a niche option, sustainable investing is now one of the fastest-growing areas of ETF product development in Europe and the ESG ETF landscape is evolving quickly in response to investor demand for ESG inclusion.”
“Given this backdrop, we believe demand for ESG ETFs is set to increase. Despite the fact that firms controlling nearly $90 trillion of AUM globally have committed to the incorporation of ESG into processes by signing up to the UN’s Principles for Responsible Investment, only an estimated 20% of that figure fit ESG criteria. However, this is set to increase rapidly as the requirements of being a signatory, such as disclosure on climate risk indicators, are tightened from 2020.”
Mandy Chiu, Head of ETF Product for EMEA and APAC, SSGA, added, “As fund innovation responds to new capabilities and investor demands, we expect a broader ETF offering to develop. At the end of January 2019, there were 210 ESG classified ETFs/ETPs. With a growing body of academic research showing a positive relationship between high ESG scores and performance, we expect the number of ESG ETFs to rise as Europe continues to lead the way in ESG thinking.”
The ETF comes with an expense ratio of 0.12%.