The number of environmental, social and governance ETFs is on the rise, showing that there is a growing demand from investors to combine passive and thematic investing, spurring providers such as FTSE Russell and Solactive to jump on the bandwagon.
FTSE Russell releases European climate risk index
FTSE Russell has released a European Monetary Union (EMU) government bond index which adjusts country weights based on sovereigns’ exposure to climate risk.
The FTSE Climate Risk-Adjusted EMU Government Bond Index (Climate EGBI) measures the performance of fixed-rate, local currency, investment-grade sovereign bonds in the FTSE EMU Government Bond Index (EGBI).
Methodology
It tilts index weights according to each country’s relative exposure to climate risk across three climate change pillars:
- Transition risk represents the level of climate-related risk exposure of the country’s economy as measured by the distance to reach the modelled emissions needed to meet a 2-degree alignment;
- Physical risk represents the level of climate-related risk exposure to a country and its economy from the physical effects of climate change; and,
- Resilience represents a country’s preparedness and actions to cope with its level of climate-related risk exposure.
Based on these pillars, Beyond Ratings, the ESG analytics provider of the London Stock Exchange Group, provided climate scores for the Climate EGBI.
Compared to the underlying market-value weighted EGBI, the Climate EGBI achieves a reduction of 16% in climate risk and 7% in greenhouse gas emissions over a back tested period from 2001, FTSE Russell said.
Sylvain Chateau, co-founder and chief operating officer at Beyond Ratings, said: “There is increasing awareness of how sovereign states are uniquely exposed to the risks of climate change. This has, in part, driven client demand for climate risk-adjusted fixed income indexes since the launch of the Climate World Government Bond Index, particularly from European investors.”
Solactive releases long-term megatrend indices
German index provider Solactive has released an index family that anticipates significant socio-economic trends, which will last for “at least the next decade”, it said.
Axel Haus, team head of qualitative research at Solactive, commented: “The Solactive Future Trends Index Series provide the means to incorporate the most promising future economic trends into long-term oriented investment strategies.”
The index family is concerned with inevitable long-term evolutions in society, economics or the environment that affect society and possibly politics, according to the company.
Themes
The series is divided into four categories: future technologies, future of the environment, future way of life, and future health and well-being.
Solactive identifies companies with exposure to the different themes, assigned to currently 18 distinct indices, by using its proprietary natural language processing software Artis.
Timo Pfeiffer, chief markets officer at Solactive, said: “It is a living and breathing index family that constantly evolves and progresses as we observe new opportunities to create innovative index strategies mirroring vital and, potentially, Earth-shattering trends.”
