Xtrackers by DWS adds Paris Aligned Benchmark ETFs to ESG offering
DWS writes that it is offering core exposure to eurozone and developed market equities in two next-generation environmental, social and governance (ESG) ETFs aligned with the objectives of the 2015 Paris Climate Accords.
Xtrackers EMU Net Zero Pathway Paris Aligned UCITS ETF and Xtrackers World Net Zero Pathway Paris Aligned UCITS ETF qualify under Article 9 of the EU’s Sustainable Finance Disclosures Regulation (SFDR). The ETFs are based on a framework aimed at reducing emissions in line with the objectives of the Paris Agreement on climate change using indices that are subject to the European Union's Paris Aligned Benchmark (PAB) regulation.
The ETF's underlying Solactive ISS ESG Net Zero Pathway indices provide a 50% reduction in carbon intensity versus an equivalent non-ESG market benchmark, and a 7% year-on-year ongoing decarbonisation pathway.
However, the ETFs aim to go further than this by additionally incorporating recommendations from the Net Zero Investment Framework Implementation Guide of the Institutional Investors Group on Climate Change (IIGCC). That means, according to the IIGCC recommendations the indices re-weight components according to carbon intensity, their commitment to Science Based Target Initiative (SBTI) and Task Force on Climate-related Financial Disclosures (TCFD) reporting standards, and on measures of 'green' revenues. The indices overweight companies through three distinct pillars: Adoption of Science Based Targets, high climate disclosures standards and mitigating climate change. As a result climate metrics are the primary driver of company active weight in the indices.
“These are the first Paris Aligned Benchmark ETFs to implement the recommendations from the IIGCC, and as such serve the needs of investors who increasingly want to align their investment portfolios with ambitious climate targets, but also play an active role in bringing about change at the corporate level,” says Simon Klein, DWS’s Global Head of Passive Sales. “By basing Xtrackers Net Zero Pathway ETFs on this robust, engagement-friendly indexing protocol, investors in Xtrackers ETFs can place their actions at the cutting edge of sustainable investment practices.”
The indices make extensive use of alignment assessments benchmarked to the UN Sustainable Development goals, both in the implementation of the 'do no significant harm' principle and in their assessment of green revenues.
The ETFs are designed to be competitive, with low annual all-in fees of less than 0.2 per cent, and moderate tracking error against traditional benchmark indices.
Additionally, the IIGCC guide stipulates good practice on engagement and stewardship. DWS is a board member of IIGCC, contributed to the creation of the Net Zero Investment Framework across all asset classes and continue to support IIGCC to develop net zero methodologies. DWS is one of the few major asset managers committed to the Science Basted Target Initiative and was the first German asset manager signatory of the Net Zero Asset Managers initiative.