UBS Asset Management (UBS AM) is launching a range of exchange-traded funds (ETFs) that track the newly developed MSCI ESG Universal Low Carbon Select indices. The funds adopt some of the already familiar features of the MSCI ESG Universal methodology.
However, the funds are stricter about the activity-based exclusion of certain companies, so they exclude 5 percent of the companies with the largest carbon footprint. Compared to the well-established MSCI ESG Universal methodology, the new approach introduces an expanded systematic with value-based exclusions depending on activities and redefines the notion of baseline exclusions.
This responds to investor requests to expand traditional baseline exclusions. Exclusions now include nuclear weapons, civilian firearms, tobacco, thermal coal, and fossil fuel extraction.
If you want to read more about the sustainable ETF launched by UBS Asset Management and how investors are taking into account climate change, download for free the Born2Invest mobile app. Our companion app brings you the latest business news in the world so you can stay on top of the market.
UBS Asset Management: Climate change as a filter mechanism
Climate change is a key issue not only for investors but also for regulators. That’s why UBS AM has implemented a filter mechanism that excludes the 5 percent of companies with the most negative carbon footprint. In addition, companies with a CCC MSCI ESG rating (the lowest ESG rating) are also completely filtered out of the investment universe. The valuation of the remaining companies is composed by a combination of market capitalization, ESG rating, and ESG trend.
Thanks to targeted climate-related exclusions and an innovative weighting scheme, these new indices reduce their carbon footprint compared to their respective parent index. At the same time, they have a more pronounced ESG profile. However, since the core of the new indices still tracks the respective parent index, they are an ideal candidate as core exposure replacements for private investors who want to take the first step towards sustainable investing.
The resulting ESG characteristics qualify the group of ETFs as Article 8 products under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
Currently, UBS is still one of the leading ETF providers in Europe and has a dominant position in currency-hedged ETFs. UBS’s ETF offering includes around 290 products that allow investors to transparently and flexibly diversify their investments across all major markets and asset classes such as stocks, bonds, real estate, commodities, and alternative investments.
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