UBS Asset Management has announced the upcoming launch of the UBS ETF S&P 500 ESG UCITS ETF in Europe which will provide a passive vehicle for socially responsible investment into the US large-cap equity market.

Clemens Reuter, Head of ETF & Passive Investment Specialists, UBS Asset Management.

It will become the first ETF to track an SRI-screened version of the S&P 500 despite there being nearly $100 billion linked to Europe-listed ETFs tracking the traditional bellwether index.

The fund is linked to the S&P 500 ESG Index which is designed to exclude firms with poor environmental, social, and governance (ESG) characteristics while maintaining similar overall industry group weights as the S&P 500.

The methodology initially excludes firms with significant business activities linked to the tobacco and controversial weapons industries, based on data from Sustainalytics. Firms with poor performance in relation to the UN Global Compact Principles are also removed.

Remaining constituents are assigned ESG scores based on SAM’s (formerly RobecoSAM) ‘Corporate Sustainability Assessment’. This ESG score is either calculated directly by a company completing a comprehensive assessment (together with supporting documents), or – in the absence of this – by using publicly available information.

The methodology removes firms with the lowest ESG scores, aiming to maintain 75% of the float-adjusted market capitalization of each Global Industry Classification Standard (GICS) Industry Group within the S&P 500. The index is weighted by float-adjusted market cap, and reconstitution and rebalancing occur annually in April.

According to UBS, the methodology provides an index that is aligned with SRI values while maintaining a risk and return profile similar to the parent index – the ESG-screened index targets a tracking error of less than 100 basis points relative to the S&P 500.

The fund comes with a total expense ratio (TER) of 0.12%. It is expected to be launched across Europe during April, including listings on London Stock Exchange in pound sterling (S5SD LN), on Xetra in euros (S5SD GY), and on SIX Swiss Exchange in Swiss francs (SPESG SW).

Currency-hedged share classes relative to pound sterling, euros, or Swiss francs are also expected to be rolled out. These share classes will come with TERs of 0.22%.

The SRI segment is one of the fastest growing themes within UCITS ETFs with AUM approaching $15bn. According to UBS, the fund was created due to direct demand from asset owners and wealth managers, who are experiencing increasing pressure from regulators and end-investors to consider SRI aspects in their investment decisions.

Clemens Reuter, Head of ETF & Passive Investment Specialists, UBS Asset Management, said, “This new product is the result of close collaboration between UBS Asset Management and S&P Dow Jones Indices. We have pioneered a new generation of sustainability ETFs, offering a core ESG exposure based on the largest and most important equity index globally.”

Michael Baldinger, Head of Sustainable & Impact Investing at UBS Asset Management, said, “UBS’s goal is to be the world’s leading sustainable financial provider by developing innovative products and solutions to meet the evolving needs of our clients.”

UBS is a market leader in ESG/SRI ETFs, controlling approximately 35% of the theme’s market share in Europe.