A pioneer in the field of environmental, social and governance (ESG) ETF investing with more than 20 years of experience in sustainable finance, BNP Paribas Asset Management (BNPP AM) has led the asset management industry in ESG ETF products – we were the first provider to offer a low-carbon ETF back in 2008. Today, 88% of our ETF and index funds range is classified as EU Sustainable Finance Disclosure Regulation (SFDR) Article 8 and 9 funds.[1]
Notably, we have designed our range of ESG and socially responsible investment (SRI) equity ETFs to meet the evolving needs of investors across the diverse universe of ETFs.
Equity ETFs
- Min TE Equities: This equity ETF range is designed to appeal to investors looking for environmentally friendly investments, with returns more closely aligned to their non-ESG benchmark. The range uses established MSCI indices and considers sustainability-related criteria, while minimising the tracking error (TE) against traditional indices.
- SRI PAB[2] Equities: This equity ETF range seeks to reduce carbon emissions by 50% versus the defined investment universe, with an additional objective of 7% carbon emission reduction year-on-year. ETFs are managed against existing MSCI equity indices and apply a ‘best-in-class’[3] ranking and a higher degree of selectivity. These strict environmental objectives, however, also result in a higher tracking error.
- Sustainable Thematic Equities: Capturing several sustainability-related themes, this range is based on ESG designed indices. These indices tend to have a higher tracking error than conventional, non-ESG benchmarks as they are more likely to exhibit sector and geographical biases. We believe they are suited to investors looking to benefit from a more concentrated exposure to secular megatrends that we expect will shape both the global economy and the environment.
Fixed income ETFs
Alongside our ESG and SRI equity ETFs, we offer a range of fixed income ETFs with ESG and SRI capabilities:
- ESG government bonds: Replicating ESG fixed income indices for the eurozone and emerging markets, these ETFs select government bonds of different maturities and credit rating profiles.
- SRI corporate bonds (PAB & fossil free): They replicate SRI fixed income indices, denominated in euro and US dollar. The methodology consists of selecting bonds of different maturities and credit rating profiles that exclude certain industry sectors. Notably, SRI PAB fixed income ETFs have the same carbon emission reduction objectives as their equity counterparts.
- Green, social and sustainability bonds: The ETF replicates a green, social and sustainability fixed income index, denominated in euro. The proceeds are allocated exclusively to projects with environmental and social benefits and that provide transparency on the management of those proceeds. While green bonds provide the missing link between the need for energy transition financing and the supply from debt capital markets, social bonds focus on activities with predominantly positive social outcomes such as, but not exclusively, access to infrastructure, food security and affordable housing.
More recently, we expanded our ETF range with a new sub-range of funds available in the equity and fixed income space. Our innovative Active ESG range combines an indexing approach with an active application of our proprietary ESG scoring methodology.[4] They are designed for investors seeking a more focused approach to sustainability, one that can adapt quickly to evolving regulations and labelling criteria while maintaining a relatively low tracking error.
Key takeaways
We expect that over the long term, ESG-themed investments will remain resilient and continue to grow. We believe growth will be driven by expanding investor demand, enhanced scrutiny, greater regulatory harmonisation globally and improved data transparency enabling us to identify opportunities, particularly in relation to the net zero goals. Interestingly, it was ETFs that provided the bright spot for ESG asset gathering in the final quarter of 2023 in Europe.[5] Not only do they offer investors a cost-effective means of gaining exposure to ESG and sustainability themes, ETFs also provide diversification, liquidity, and a highly transparent platform to meet a range of responsible investment objectives.
[1] 2023 Sustainability Report, BNP Paribas Asset Management
[2] PAB: Paris Aligned Benchmark standards that aim to reduce carbon intensity by 50% relative to the initial investment universe and by at least 7% each following year.
[3] This approach involves selecting companies with the best ESG rating within each sector of activity.
[4] ESG assessments are based on BNP Paribas Asset Management’s proprietary methodology, which integrates all three aspects of E, S and G.
[5] Morningstar, as of 31 December 2023
