Legal & General Investment Management (LGIM), one of Europe’s largest asset managers, announced today the launch of the L&G ESG Green Bond UCITS ETF, adding to the firm’s suite of sustainable fixed income funds for UK and European investors, including the recently listed L&G ESG USD Corporate Bond UCITS ETF and L&G ESG Emerging Markets Corporate Bond UCITS ETF.
The new ETF aims to track the J.P. Morgan ESG Green Bond Focus Index. According to JPM, the index provides exposure to green bonds issued across hard currency (USD, EUR and GBP denominated) credit and local currency government bonds across Developed and Emerging markets with a focus on green bonds that have been reviewed independently by the Climate Bonds Initiative, to minimize the incidence of ‘greenwashing’. The index applies an ESG scoring and screening methodology to tilt toward green bond issuers ranked higher on ESG criteria and ‘Certified Climate Bond’ issues, and to underweight green bond issues that have not been reviewed independently.
LGIM stated that the new ETF launch was driven by wider sector and investor demand for sustainable credit. A recent report from credit ratings, research, and risk analysis provider Moody’s Investors Service predicted global sustainable bond volumes, encompassing global issuance of green, social and sustainability bonds, to exceed $650 billion in 2021, representing year-over-year growth of 32% from the record $491 billion set in 2020.
Howie Li, Head of ETFs at LGIM, said:
“As with the rest of the range, we have designed these new ETFs to be portfolio building blocks that answer to investors’ increasing call for ESG integration and liquidity considerations. These funds incorporate ESG as standard and employ a liquidity-aware approach, including increased minimum issuance thresholds relative to traditional benchmarks to improve the overall liquidity profile. Through the active design of these indices, the expansion of this range continues to draw on LGIM’s deep experience in bond management and responsible investing. As questions mount on how “green” some bond issues in the market may be, the incorporation of the Climate Bonds Initiatives certification process into the design means that we can direct more of an investor’s money towards green projects that have been independently verified.”
James Crossley, Head of UK Retail Sales at LGIM, added:
“We are excited to build out our ETF suite, which encompasses a diverse range of nearly 40 core and thematic products for retail and wholesale investors in the UK. It was important that we could incorporate some of our pragmatic portfolio management techniques into the index design itself, allocating to green bonds and issuers with the highest ESG scores while retaining a similar risk/return profile to traditional indices.”