The macro trend of sustainable finance continues to grow and ESG investments raise more and more money: UBS ESG ETF tracks the Bloomberg Barclays MSCI Global Liquid Corporates Sustainable Etf index, selecting only the best ESG bonds.
The Covid crisis accelerates current trends and is certainly the same for the macro trend of sustainable finance. More and more people want to invest in the “green economy” and in financial instruments that do not conflict with their ethical beliefs. Just think that in March, the worst month on global markets, the data collected by Morningstar – which based its research on 2,528 European mutual funds and ETFs – describe a first quarter of the year with positive net flows for all products that focus on investment issues attentive to the environment, governance and social practices.
There is more: great exponents of the world of managed savings estimate inflows on the segment of sustainable investments for 1,200 billion dollars in the next 10 years.
ESG investments are not only marketing, but a real driver of growth for the future, especially considering that no business will be able to do without carrying out its business at least with attention to environmental sustainability.
ETF and ESG criteria, two trends taking place on global markets
One tool that is making a strong foothold in the world of savings are ETFs, passively managed listed funds that replicate the performance of an index. 2019 for European ETFs has been an extremely positive year.
As reported by the Morningstar specialized magazine, in fact, the estimates updated as at 31 December showed a managed asset of 923 billion euros (compared to 658 in the previous year). The merit is undoubtedly of the rally on the markets that characterized last year, but also of the 107 billion of net deposits totaled (even 2020 had started well, before the Covid crisis). All this highlights how these products are catalyzing a lot of interest.
The growing demand for ESG investments is added to this already ongoing trend, which is why the Bloomberg Barclays MSCI Global Liquid Corporates Soustainable Etf index was born. Only bonds from companies that have obtained an adequate MSCI environmental, social and governance score (precisely, ESG) can enter this basket.
USB’s ESG ESF that tracks the Bloomberg Barclays MSCI index
The Swiss investment company UBS built its ESG ETF on the Bloomberg Barclays index. This is the UBS ETF – Bloomberg Barclays MSCI Global Liquid Corporates Sustainable UCITS ETF (ISIN LU2099991536). The index filters a limited and liquid portion of the Corporate Esg sector.
There are three levels of selection: the first is linked to liquidity and market requirements, therefore only bonds from solid companies are selected and whose country risk is limited. A further currency filter is then applied, that includes in the basket only bonds issued in a limited number of currencies: euro, US dollar, pounds and canadian dollar.
Finally, ESG screening is extremely thorough and in turn on three levels. The first step concerns the ESG rating of the securities: bonds with an MSCI ESG score below BBB are excluded. In the second step, all businesses that do not meet strict ESG criteria are excluded, for example tobacco, betting, nuclear energy, adult entertainment, genetically modified organisms. In the third step, all issuers with a low score in the MSCI ESG Controversies Score are excluded, a parameter that takes into account adherence (or not) to international standards and principles, as well as any controversial events in that the l is involved. issuing company regarding issues esg. If the score reaches the “red” level, the bond in question cannot be included in the USB’s ESG ESF.
The Bloomberg Barclays MSCI Global Liquid Corporates Sustainable Etf index searches the market for worthy ESG opportunities in order to improve the quality of the basket of securities. In fact, the portfolio is rebalanced on a monthly basis. At the end of May, the index had a greater exposure to the US area (almost 70%) and the most represented sectors are banking, non-cyclical consumption and technology. The performance of the index, driven by the association of the liquidity parameters with the ESG ones, performed 4.37% better than the Global Liquid Corporates Sustainable Bond, taking into consideration the data from 29 May 2015 to 29 May 2020. To all this is added, as UBS itself informs, that a higher ESG rating generally relates to better credit quality.