New research(1) from fixed income ETF provider Tabula Investment Management Limited (“Tabula”) reveals that a desire to make a positive impact (or reduce a negative one) is the key reason for selecting ESG investments.
When asked to pick the reasons for selecting ESG investments, 70% of European institutional investors and wealth managers cited a desire to make a positive impact. This was followed by the need to comply with investment policies or guidelines, which was cited by 67% of survey respondents.
100 professional investors across the UK, Sweden, Switzerland, Denmark, Norway, Italy, Germany and France were interviewed in February 2021.
Interestingly, the survey identified a growing desire for funds to have an ESG rating from an independent rating agency. 77% of survey recipients interviewed identified an ESG rating as fundamental in their investment decision making, compared to just 10% of survey participants(2) nine months prior. Meanwhile, just 24% of investors were concerned about a fund manager’s stewardship record when selecting investment funds.
When asked which ESG themes are most important in investment selection, survey participants showed a clear preference for ESG themes that have impact, such as climate change (41% of respondents), over “DNSH” investments which “do no significant harm” (11% of respondents).
Earlier this year, Tabula launched the world’s first fixed income ETF which tracks a Paris-Aligned benchmark. The Tabula EUR IG Bond Paris-aligned Climate UCITS ETF (the “ETF”) is currently the only EUR core IG ETF that meets the Sustainable Finance Disclosure Regulation (SFDR) Article 9 requirements. The fund delivers exposure to Euro investment grade bonds and provides 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.
“This year, ESG criteria in funds will shift from being one of the many factors to consider to being a key theme in all investments, and the recent introduction of the SFDR will help accelerate this”, says Tabula CEO, Michael John Lytle.
“We expect funds with specific ESG outcomes to take over the ESG thematic, and Paris climate benchmarks will increasingly 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 – we are the first ETF provider to deliver this opportunity and the only EUR core IG ETF with an SFDR Article 9 categorisation.”
The Tabula EUR IG Bond Paris-aligned Climate UCITS 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 worked with Solactive and ISS ESG to develop the ETF’s benchmark, the 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.
Tabula is firmly committed to supporting ESG investing. It is a signatory to the UN-supported Principles for Responsible Investing and also to the Climate Action 100+. In addition, Tabula is a member of the Institutional Investors Group on Climate Change (IIGCC) and it aims to actively engage with index providers to improve ESG standards across new and existing fixed income indices.
The Tabula EUR IG Bond Paris-aligned Climate UCITS ETF (EUR) – Acc. is listed on Xetra with ticker TABC. The ETF has an ongoing charge figure (OCF) of 25bps. An SEK-Hedged Accumulating share class is also listed on Cboe with ticker COOLx and an OCF of 30bps.
- Tabula Investment Management commissioned the market research company PureProfile to survey 50 wealth managers and 50 institutional investors in February 2021. Professional investors were based in UK, Sweden, Switzerland, Denmark, Norway, Italy, Germany and France.
- Tabula Investment Management commissioned the market research company PureProfile to survey 100 wealth managers and institutional investors in May/June 2020.