European ETF provider Tabula Investment Management Limited has launched the first Euro high yield bond ETF meeting the EU criteria for a Paris-Aligned Benchmark (PAB).
The firm writes that the Tabula EUR HY Bond Paris-Aligned Climate UCITS ETF (THEP GY) aims to provide exposure with significantly lower GHG emissions profile than traditional Euro high yield market funds combined with other enhanced ESG characteristics. The fund is classified as Article 9 under the EU Sustainable Finance Disclosure Regulation.
“There is now no doubt that investors want to align their portfolios with the Paris Climate Accord goals,” says Tabula CEO Michael John Lytle. “We’ve seen a raft of new Paris-aligned equity ETFs but fixed income investors risk being left behind. Tabula is keen to address this by adding a Euro high yield ETF to our existing ~EUR125 million investment grade fund”.
To meet the EU standards, Paris-aligned ETFs must deliver 50 per cent lower GHG emissions when compared to the broader market benchmark, plus a 7 per cent annual reduction, as well as excluding fossil fuel companies. These funds must also exclude issuers who violate global norms like the UN Global Compact, cannot include companies that do significant environmental harm, nor include companies involved with controversial weapons or tobacco.
As well as meeting the EU PAB criteria, the new Tabula ETF aims to provide significant additional ESG benefits. “The PAB rules set out strong climate standards, but many investors want to go a step further in terms of broader ESG integration,” says Jason Smith, CIO of Tabula. “This is particularly true in the high yield market, where the ESG risks may be greater and issuers are perhaps less able to mitigate them.”
The Tabula ETF applies additional exclusions such as nuclear power, gambling, alcohol and civilian firearms. It also overweights issuers with strong or improving ESG ratings, and vice versa. “We’re always listening to investors and adapting our investment approach,” comments Smith. “With this ETF, we hope to meet both the climate objectives and the wider ESG goals of many high yield investors.”