Barclays and MSCI plan ESG bond indices, ETFs could follow

May 7th, 2012 | By | Category: ETF and Index News

Barclays and MSCI have teamed up to create a family of co-branded Environmental, Social & Governance (ESG) fixed income indices.

Barclays, MSCI plan ESG bond indices, anticipated precursor to ETFs

Barclays and MSCI have announced plans to create a range of Environmental, Social & Governance (ESG) bond indices.

The indices will be aimed at investors with ESG commitments, such as UN PRI (United Nations Principles for Responsible Investing) signatories, who have exposure to fixed income investments that require a benchmark which integrates ESG factors. It is anticipated that the indices will also eventually be used as underlying benchmarks for ETFs.

MSCI has a strong pedigree in ESG equity indices and is the only major index provider to have its own in-house ESG research team. However, none of its ESG indices track fixed income securities, which explains the link-up with Barclays, who have vast experience developing and calculating fixed income indices.

Baer Pettit, Managing Director and Head of the MSCI Index Business, said, “MSCI is very pleased to be working with Barclays to create a family of global ESG fixed income indices. The objective of MSCI’s ESG business is to provide investors with tools to integrate ESG factors across a broad range of asset classes. Working together with Barclays, we expect these new benchmarks to fill a gap in the market and facilitate the growth of ESG investment.”

ESG investing, also known as Socially Responsible Investing (SRI) and Sustainable Investing, involves the integration of environmental, social and governance factors into investment analysis and decision making. By identifying companies that are leaders in the development of sustainable business practices, ESG investing offers investors the opportunity to capture a number of attractive features that are associated with companies adhering to ESG-aware business models.

FEATURED PRODUCT

iShares Dow Jones Global
Sustainability Screened ETF (IGSG)

– Consists of the top 20% of the largest 2500 global
sustainability companies of the Dow Jones Global
Total Stock Market Index

– Companies are selected based on long-term
ESG criteria. Excludes companies engaged involved
in Alcohol, Tobacco, Gambling, Armaments & Firearms
and Adult Entertainment

– Optimised physical replication with full transparency
to underlying holdings

– UCITS compliant, LSE listed, UK Reporting Status,
eligible for ISAs and SIPPs, TER 0.60%

According to Pax World Investments, a US-based specialist in sustainable investing, key benefits of ESG investing are as follows:

i) Companies with stronger environmental performance often carry less risk, achieve greater efficiencies and are better positioned to take advantage of opportunities in a global marketplace where environmental issues increasingly matter.

ii) Companies with strong employee relations and workplace practices often enjoy higher productivity, higher morale, lower turnover and absenteeism, and are therefore better positioned for growth than their less enlightened competitors.

iii) Companies with better corporate governance practices may be less likely to have “blow-ups” or other surprises, financial or otherwise.

Currently, the list of ESG-related ETFs is somewhat sparse, with none providing exposure to fixed income.

iShares Dow Jones Global Sustainability Screened ETF (IGSG)
The iShares Dow Jones Global Sustainability Screened ETF is designed to track the performance of the Dow Jones Sustainability World Enlarged Index ex Alcohol, Tobacco, Gambling, Armaments & Firearms and Adult Entertainment Index. The Dow Jones Sustainability World Enlarged Index ex Alcohol, Tobacco, Gambling, Armaments & Firearms and Adult Entertainment Index consists of the top 20% of the largest 2500 global sustainability companies of the Dow Jones Global Total Stock Market Index. The companies are selected for the index based on long-term economic, environmental and social criteria. London listed. TER 0.60%

iShares Dow Jones Europe Sustainability Screened ETF (ISES)
The iShares Dow Jones Europe Sustainability Screened ETF is designed to track the performance of the Dow Jones Sustainability Europe Index ex Alcohol, Tobacco, Gambling, Armaments & Firearms and Adult Entertainment. The Dow Jones Sustainability Europe Index ex Alcohol, Tobacco, Gambling, Armaments & Firearms and Adult Entertainment Index consists of the top 20% of the largest 600 European sustainability companies of the Dow Jones Global Total Stock Market Index. The companies are selected for the index based on long-term economic, environmental and social criteria. London listed. TER 0.45%

DB X-trackers S&P US Carbon Efficient ETF (XGRC)
The S&P US Carbon Efficient Index ETF is designed to track the performance of no more than 375 companies with relatively low carbon emissions, while seeking to closely track the return of the S&P 500, its parent index. The S&P US Carbon Efficient Index is composed of a subset of the constituents of the S&P 500 that have a relatively low Carbon Footprint, while maintaining at least 50% of the original weight representation for every GICS sector in the S&P 500. The Carbon Footprint is calculated by Trucost Plc and is defined as the company’s annual greenhouse gas (GHG) emissions assessment, expressed as tons of carbon dioxide equivalent (CO2e), divided by annual revenues. Through optimisation, the index seeks to closely track the return of the S&P 500, while excluding those companies that have the largest relative Carbon footprints. London listed. TER 0.50%

Selected others (non-UK listings):

iShares Dow Jones Eurozone Sustainability Screened (DE) ETF (EXXV)
Deutsche Borse listed

Pax MSCI North America ESG Index ETF (NASI)
NYSE listed

Pax MSCI EAFE ESG Index ETF (EAPS)
NYSE listed

iShares MSCI KLD 400 Social Index ETF (DSI)
NYSE listed

iShares MSCI USA ESG Select Social Index ETF (KLD)
NYSE listed

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