DAX ESG Target Index to serve as underlying for new iShares ETF
Qontigo has licensed the DAX ESG Target Index to BlackRock for the launch of a new German-domiciled iShares ETF – iShares DAX ESG UCITS ETF (DE) which has listed on the Frankfurt Stock Exchange.
The objective of the new index is to reflect the DAX while maximising its ESG score and reducing its carbon intensity by at least 30 per cent.
“Since 1988, the DAX index is tracking an essential part of the German economy, making it one of the leading price barometers. Many DAX companies do business on an international level. This means that in addition to their roots in the domestic market, they are also closely linked to the global economy. In this respect, the iShares DAX ESG UCITS ETF reflects the strength of a large part of the German economy as well as the global economy. This makes it interesting for domestic and international investors. A sustainable and therefore forward-looking approach is aligned with our clients' long-term goals,” says Dirk Schmitz, Country Head Germany, Austria and Eastern Europe at BlackRock.
“Earlier this month, the German federal government announced a new green financing strategy to steer capital towards environmental projects and develop Germany into a major hub for sustainable finance. Germany is taking a leading position on the global stage with a strong trend towards sustainable investing. The DAX ESG Target Index is an innovative solution that represents the German market, made possible by the combination of analytics and indexing that is at the core of our approach at Qontigo. At Qontigo, we aim to provide our clients with building blocks to optimise impact for sustainable portfolios by offering choice to reflect their unique sustainability preferences,” says Stephan Flaegel, Chief Product Officer, Indices and Benchmarks at Qontigo.
The DAX ESG Target index offers a similar risk and return profile as the flagship benchmark index and is the first DAX ESG index that integrates ESG improvement as well as addressing climate risks. During the DAX market consultation last year, commenters requested a clear separation between mainstream benchmark indices and dedicated ESG benchmarks, and this new ESG version of the DAX is intended to address that market demand.
The DAX ESG Target Index provides a portfolio optimisation (re-weighting) to meet tracking error constraints and CO2 reduction goals and incorporates ESG rating information from Sustainalytics, a leading global provider of ESG research, ratings and data. The index also applies Global Standards Screening provided by Sustainalytics and product involvement screens for weapons (controversial weapons, military contracting, small arms), tobacco, thermal coal, nuclear power, and oil sands.
Companies that are excluded from the index as a result of these screenings are then replaced from the universe of the HDAX (DAX, MDAX and TecDAX) based on market capitalisation and ESG score to complete the number of 30 constituents again.
The DAX ESG Target is licensed to BlackRock for an exchange traded fund. The index can also be suitable as an underlying for certificates and other investable products.
The DAX ESG Target Index is part of Qontigo’s suite of Sustainable Index Solutions, a comprehensive offering of ESG, sustainability and climate indices. Qontigo offers a wide range of ‘exclude’ and ‘enhance’ strategies to enable investor choice. Indices in the ‘enhance’ category, including the DAX ESG Target Index, have been designed for investors who wish to maximize their portfolios’ ESG profiles while maintaining benchmark exposure.
Since 1988, DAX tracks the performance of the 30 largest and most liquid companies on the Frankfurt Stock Exchange. As Germany’s best-known index, it provides investors with straightforward, transparent and fast access to the German equity market.