Stockholm (NordSIP) – Lyxor Asset Management, a part of Société Générale Group, sponsored research that shows ESG integration doesn’t affect risk-adjusted returns. The asset manager also recently launched a new Green Bond ESG ETF and published a new climate policy according to which it will divest from coal.
ESG Doesn’t Have to Hurt Returns
The Lyxor Dauphine Research Academy sponsored the research by Fabio Alessandrini and Eric Jondeau of the University of Lausanne. The article, titled ‘ESG Investing: From Sin Stocks to Smart Beta’, looked at the link between ESG investing and broader investment performance.
Their results find that exclusions lead to improved scores of otherwise standard portfolios without deterioration of their risk-adjusted performance for both passive investment and smart beta strategies. However, the authors warn that the exclusions often lead to the portfolio taking an extra share of exposure in specific sectors or regions, which may not necessarily be desirable.
“Improving the ESG profile of a portfolio does not happen at the expense of performance. In some cases, it can even lead to superior returns”, said Marlène Hassine Konqui, Head of ETF Research at Lyxor Asset Management. “And as the availability and reliability of ESG information improve, more and more index-based strategies are being created to embed ESG characteristics.”
“Lyxor views ETFs and ESG as a natural fit and expects this segment of Europe’s ETF market to grow substantially” added François Millet, Head of ETF Strategy, ESG and Innovation at Lyxor Asset Management.
Lyxor Launches New ESG ETF
At the beginning of October, Lyxor partnered with Solactive to launch the new Lyxor Green Bond ESG Screened UCITS ETF (XCO2). The ETF tracks the Solactive Green ESG Bond EUR USD IG TR Index, a benchmark of Euro- and US Dollar-denominated investment-grade green bonds issued by sovereigns, supra-nationals, development banks and corporates.
“Lyxor is committed to providing investment solutions to aid climate transition, including offering ETF access to the booming green bond market,” commented Millet on the occasion. “Having pioneered green bond ETFs, we are delighted to be able to expand our range and offer investors a choice of green bond solutions to meet their ever-evolving ESG needs.”
To be eligible for inclusion, the underlying bonds have to meet the Climate Bond Initiative’s (CBI) standards and ensure that proceeds are only used for climate-friendly projects. Specific companies involved in fossil fuel and nuclear power, those with controversial businesses and UN Global Compact violators are also excluded.
Lyxor Blacklists Coal
The asset manager also recently announced a new climate policy to meet the pledges of the Paris Agreement. As part of this new policy, Lyxor has decided to divest from those companies most exposed to coal. Specifically, it excludes those companies that “generate more than 10% of their turnover from activities related to thermal coal mining” and “energy sector companies for which over 30% of the electricity production is derived from coal”.
“Our Climate Policy reflects the willingness to fast-track the implementation of our commitment to fighting climate change and, consequently, contribute to the worldwide ambition of keeping global warming below two degrees by 2100, as set out in the Paris Agreement,” explains the accompanying press release.
This approach is consistent with SocGen’s strategy of total exit from the coal sector by 2030 for companies with assets in the EU or the OECD, and by 2040 for the rest of the world. Lyxor has divested €350 million so far.