Stockholm (NordSIP) – With the entry into effect of the Sustainable Finance Disclosures Regulation (SFDR) at the start of March, funds and regulators have had to adapt to the new regulatory environment. Now, UBS Asset Management (UBS AM) joins this trend with its first Climate Aware exchange-traded fund (ETF), the UBS Climate Aware Global Developed Equity CTB UCITS ETF, launched on March 17th. The fund tracks the Solactive UBS Climate Aware Global Developed Equity Climate Transition Benchmarks (CTB) Index and is classified as an Article 9 product under SFDR.
“Investors in the Nordics have been among the leaders in terms of ESG integration and adoption as well as impact investing,” Florian Cisana (Pictured), Head UBS ETFs & Index Funds Strategic Markets EMEA at UBS AM, tells NordSIP. “The availability of Article 9 ETFs adds important building blocks that investors can use to further enhance the climate change profiles of their portfolio. It has been interesting to notice how certain asset owners/investors have incorporated Paris Alignment within their Sustainable Investment Policies, showing how an important topic climate change is.”
The new ETF is primarily available in a USD share class. Listings will be made available across key European exchanges, including the Xetra, Borsa Italiana and SIX Swiss Exchange. It is registered in Sweden, Norway, Finland for retail and professional investors. The ETF is also registered for professional investors in Denmark and will be available on the major Nordic retail platforms.
The ETF mirrors UBS AM’s Climate Aware framework and is intended for investors who require global developed market large and mid-cap equity exposure with a strong climate profile. The Solactive UBS Climate Aware Global Developed Equity CTB Index is designed to mimic UBS AM’s Climate Aware framework and the tilt holdings towards companies with best-in-class climate score while excluding laggards.
The index excludes companies involved in tobacco, controversial and military weapons, firms with United Nations Global Compact violations and companies exposed to production and energy generation of thermal coal and oil sands. It then calculates a climate score that integrates key climate change risks and opportunities. Based on the climate score, the index overweighs leaders and excludes those companies with the 30% lowest scores.
The Solactive UBS Climate Aware Global Developed Equity CTB Index fulfils the EU Climate Transition Benchmark minimum requirements and achieves a substantial ESG improvement, with a limited potential temperature increase of 1.8°C by 2050, compared to 2.8°C estimated for the parent benchmark. This is achieved through a 41% reduction in carbon intensity and a reduction of potential future emissions of 92% relative to its parent index. At the same time, the portfolio increases the green share of power generation output by almost 50%.
As is customary for UBS AM’s Climate Aware suite of products, the firm will apply its engagement strategy and active voting policy to the ETF holdings, advocating clear climate-friendly principles to support investee companies in developing new technologies needed and suited for the transition to a low carbon economy.
The SFDR Angle
UBS’s new ETF is classified as an Article 9 product under the EU’s Sustainable Finance Disclosure Regulation (SFDR). Cisana explains that the original aim when creating the UBS Climate Aware Global Developed Equity CTB UCITS ETF was “to leverage the intellectual property of the UBS Climate Aware strategy and to apply that within the minimum standards for a Climate Transition Benchmark. The development of the new ETF was focused on creating a CTB rather than setting out to create an Article 9 fund.”
“The minimum standards for EU CTBs and EU Paris-Aligned Benchmarks (PAB) are contained in a delegated act that came into force in December 2020. In terms of SFDR, there is a specific reference to CTBs and PABs, which are classified under Article 9(3),” Cisana explains. “These products have a reduction in carbon emissions as their objective, and shall include the objective of low carbon emission exposure in view of achieving the long-term global warming objectives of the Paris Agreement.”
“A significant amount of time and expertise was invested in creating the product. Since these products are tied to a law and fall within the highest regulatory classification, great care should be taken in constructing such products. Apart from taking into account the minimum standards for a CTB, the UBS Climate Aware Global Developed Equity CTB UCITS ETF also incorporates the intellectual property that UBS has built up around its successful Climate Aware strategy which has more than US$15 billion AUM. An additional consideration includes a 10% improvement in ESG Score as compared to the benchmark. ”
Article 6 ETFs account for about 68.3% of UBS ETF’s assets (ca. US$83 billion at the end of February 2021), at this point in time. Another 31.6% of UBS ETF’s assets fits under Article 8, with the remaining 0.1% being categorised as Article 9. “UBS has a very strong focus on Sustainable Investing, so it would be fair to assume that Article 8 and Article 9 ETFs will represent an increasingly important share of our offerings going forward,” Cisana concludes.