European fixed income ETF provider Tabula Investment Management has launched what it claims is the world's first fixed income ETF that is aligned to the Paris Agreement on climate change.
Tabula says it believes that, in 2021, ESG criteria in funds will shift from being one of many investment themes to being a key investment consideration in all investments, and changes in European legislation will institutionalise this.
As a result, impact funds will take over the ESG thematic. Paris climate benchmarks will likely become a core allocation for investors with climate concerns. To date, there have not been any passive fixed income funds or ETFs offering this exposure. Tabula is the first ETF provider to tackle this opportunity.
The Tabula EUR IG Bond Paris-aligned Climate UCITS ETF delivers exposure to Euro investment grade bonds from companies with 50% lower greenhouse gas emissions when compared to the broad market, and an annual decarbonisation of at least 7%.
It undertakes robust ESG screening, with bonds excluded from companies that have violated ‘social norms' (on human rights and labour, for example), to those selling controversial weapons and tobacco, and from companies that cause significant environmental harm.
The ETF is suitable for core allocations as it applies a strict liquidity filter and sector constraints, while historical back-testing calculates that it would have delivered strong historical correlation with traditional broad Euro investment grade benchmarks.
Tabula has worked with Solactive and ISS ESG to develop the ETF's benchmark, the new Solactive ISS Paris Aligned Select Euro Corporate IG Index, a liquidity-focused Paris Aligned benchmark for Euro IG bonds.
The data used for filtering the bonds is supplied by ISS ESG, part of the Institutional Shareholder Services group of companies (ISS). ISS has existed for almost 30 years and has had a climate practice for over 10 years. Its data is some of the highest quality available in the market.
"Tackling climate change is arguably the defining issue of our age and addresses a major risk to all investment portfolios," said Tabula CEO, Michael John Lytle. "Investors need to utilise specialist climate solutions, and there needs to be a major shift of large asset pools into a range of climate impact investments."
Tabula CIO, Jason Smith, added, "The investment management industry has a duty to develop more innovative and higher impact approaches to help divert investment into companies with strong ESG credentials. We believe our latest ETF is the best passive example of this in the fixed income space. We also need to prevent greenwashing and misleading low-carbon claims, improve transparency and comparability, while incorporating broader ESG screening."
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