Fixed income ETF specialist Tabula Investment Management has launched the first euro high yield bond ETF that adheres to the carbon reduction goals of the Paris Agreement.
Jason Smith, CIO of Tabula Investment Management.
The Tabula EUR HY Bond Paris-Aligned Climate UCITS ETF (THEP GY) has been listed on Xetra in euros.
The fund is linked to the iBoxx MSCI EUR High Yield Paris Aligned Capped Index which begins with an initial universe of sub-investment grade, euro-denominated corporate bonds with at least one year remaining to maturity. Eligible issuers must be domiciled in a developed market and have a minimum notional outstanding of €250 million.
The methodology sets out to deliver a superior ESG profile and significantly lower greenhouse gas emissions compared to this parent universe.
To meet the EU standards for a Paris-aligned benchmark (PAB), the index excludes UN Global Compact violators as well as firms involved in fossil fuels, tobacco, and controversial weapons. It also weights its constituents in order to deliver an immediate 50% reduction in greenhouse gas emissions as well as a further 7% annual decarbonization going forward through future rebalances.
The index goes further, however, delivering additional ESG benefits such as the removal of companies involved in nuclear power, gambling, alcohol, and civilian firearms, and seeking to increase the weight of firms with strong or improving overall ESG ratings, based on MSCI’s evaluation of sector-specific ESG risks.
Jason Smith, CIO of Tabula Investment Management, said: “The PAB rules set out strong climate standards, but many investors want to go a step further in terms of broader ESG integration. This is particularly true in the high yield market, where the ESG risks may be greater and issuers are perhaps less able to mitigate them.
“We’re always listening to investors and adapting our investment approach. With this ETF, we hope to meet both the climate objectives and the wider ESG goals of many high yield investors.”
The ETF comes with an expense ratio of 0.50% and is classified as an Article 9 product under the EU Sustainable Finance Disclosure Regulation (SFDR).
The fund is the second Paris-aligned fixed income from Tabula following the January 2021 launch of the Tabula EUR IG Bond Paris-aligned Climate UCITS ETF (TABC GY). This fund, also an industry first, targets euro-denominated corporate bonds with investment-grade ratings. It comes with an expense ratio of 0.25% and has accumulated approximately €125m in assets.
Michael John Lytle, CEO of Tabula Investment Management, commented: “There is now no doubt that investors want to align their portfolios with the Paris Climate Accord goals. We’ve seen a raft of new Paris-aligned equity ETFs but fixed income investors risk being left behind. Tabula is keen to address this by adding a euro high yield ETF to our existing euro investment-grade fund.”