DWS launches two Xtrackers EUR bond ETFs using ESG criteria
DWS has launched two new Xtrackers ETFs that provide access to government bonds and high-yield corporate bonds in the euro area.
The firm writes that the product’s underlying indexes select bonds on the basis of a comprehensive set of rules centred on environmental and social standards, as well as good corporate governance (ESG for short).
The Xtrackers ESG Eurozone Government Bond UCITS ETF was listed on Deutsche Börse on 8 July 2022, with listings on other exchanges planned. The ETF tracks the FTSE ESG Select EMU Government Bond Index. This uses the established FTSE Russell ESG framework for government bonds, but in addition applies more stringent criteria to give a higher weighting to countries with better ESG characteristics while lowering the weighting to those with lesser ESG characteristics. The index also excludes countries with the worst ESG characteristics, as well as countries that are not considered "free". This is based on an annual assessment by the Freedom House organisation.
Each country is assessed in three categories (each with different subcategories) to determine the ESG score:
- Environment: energy, climate protection and resource consumption
- Social: inequality, employment, human capital, health and social justice
- Governance: corruption, effectiveness of government action, political stability, legal certainty, voice and accountability
The second new launch is the Xtrackers ESG EUR High Yield Corporate Bond UCITS ETF, which was listed on Deutsche Börse and the London Stock Exchange. This product is also planned to be listed on other exchanges. The ETF's investment objective is to track the Bloomberg MSCI Euro High Yield Sustainable and SRI Index. This index reflects the performance of euro-denominated high-yield corporate bonds that meet certain size and liquidity conditions. In addition, the index includes several filters to meet ESG characteristics. For example, bonds without a rating from MSCI ESG Research LLC are excluded from the index, while bonds from issuers with an MSCI ESG rating of "BB" or higher are included. Finally, all issuers linked to controversial weapons, fossil fuel extraction or nuclear weapons are excluded. Issuers active in areas such as civilian firearms, thermal coal power, tobacco or alcohol are excluded if their turnover exceeds five per cent. By applying the criteria, around half of the index members are excluded compared to the initial index (Source: DWS, Bloomberg, as of January 2022).
"With these two new ETFs, DWS is adding important investment segments to our range of Xtrackers ESG bond ETFs. We now offer investors ETFs for corporate and government bonds with different credit ratings, currencies and regional delineations based on a coordinated ESG rulebook," says Michael Mohr, Head of Passive Products at DWS.