Lyxor has launched the first EU Paris-Aligned ETFs as the latest additions to its ecosystem of EU climate benchmark ETFs. The four new ETFs are designed to meet and exceed the EU Paris-Aligned benchmarks’ minimum requirements and will be adjusted according to the final characteristics set out in the EU delegated acts later this year if appropriate. Their investment objectives are aligned with the IPCC’s[1] most ambitious scenario based on the 2015 Paris Agreement goals – limiting global warming to 1.5°C “with no or limited overshoot” above pre-industrial levels.
Such a scenario requires these portfolios to achieve an absolute decarbonisation trajectory of 7 per cent year-on-year. The underlying indices also achieve an immediate carbon intensity reduction of 50 per cent, instantly aligning them with the widespread objective of a 50 per cent reduction in emissions by 2030, which is a major milestone on the path towards a net zero world in 2050. In order to do this, these ETFs have become the first anywhere in the world to integrate the greenhouse gas emissions of the entire value chain of any given company. They are also the only ETFs which take the physical risk to business activity deriving from extreme climate events into account.
Tracking S&P Paris-Aligned Climate indices, these four ETFs (on Eurozone, European, US and Global equities) are deeply anchored in voluntary international recommendation frameworks for assessing climate-related risks and opportunities. In particular, they adhere transparently to the Task Force for Climate-related Financial Disclosure (TCFD)[3] model for assessing climate-related risks and opportunities and a science-based framework using data and models recommended by the Science Based Targets Initiative.
These ETFs exclude companies active in the fields of coal, and above certain thresholds of oil, natural gas, and carbon intensive electricity production. They also avoid companies harming the EU’s environmental objectives, and those involved in controversial weapons, tobacco or violating societal norms. Then, by using S&P’s climate data specialist Trucost’s Transition Pathway Model, which relies on forward-looking data to analyse and forecast issuers’ future greenhouse gas emissions, these ETFs aim to follow a clear and predictable decarbonisation trajectory by reallocating capital to those companies which are the most ambitious contributors to emission reductions for a 1.5°C global warming scenario. This ambitious, “organic” approach to portfolio decarbonisation is made possible by incorporating significant amounts of data from multiple sources and applying a clear data hierarchy. Trucost is a leading company in assessing risks related to climate change, natural resource constraints, and broader environmental, social, and governance factors.
Earlier this year, Lyxor became the world’s first ETF provider to launch an ecosystem of ETFs designed to mitigate climate change. It did so by listing a range of ETFs that met the requirements for EU Climate Transition benchmarks, setting explicit targets to curb the rise in temperatures under the new benchmark regulation.
Arnaud Llinas, Head of Lyxor ETF & Indexing, says: “EU climate benchmarks are just one of the ways Europe is taking the lead on climate. At Lyxor, we believe in the power of indices and ETFs to build on data and shift capital at scale towards a climate neutral economy. With this latest enhancement to our climate ETF ecosystem, we are helping investors take their decarbonisation ambitions to the next level as well as adopting an even greener approach through fossil fuel exclusions”.
Reid Steadman, Global Head of ESG Indices at S&P Dow Jones Indices, says: “We are very pleased that Lyxor has selected our S&P Paris-aligned climate indices as the underlying benchmarks for its new exchange-traded funds. We’re proud to offer innovative and transparent indices in Europe and globally that help our clients navigate the transition to a low carbon economy, and capture both financial risks and opportunities.”
