Invesco launches global sector ETFs with ESG integration

Invesco launches the new range of Invesco S&P World Sector ESG UCITS ETFs offering global sector exposure with ESG considerations, but with similar profiles to standard sector benchmarks.

Sign up to our free newsletters

By ETFWorld.co.uk

Chris Mellor, Head of EMEA Equity ETF Product Management at Invesco

The Invesco S&P World Sector ESG UCITS ETFs replicate the performance of the S&P Developed Ex-Korea LargeMidCap ESG Enhanced sector indices, a new set of benchmarks created by S&P Dow Jones Indices (S&P DJI) for sustainable sector investing.

Invesco’s four ETFs offer exposure to some of the largest and most heavily traded sectors:

    Invesco S&P World Energy ESG UCITS ETF

    Invesco S&P World Financials ESG UCITS ETF

    Invesco S&P World Health Care ESG UCITS ETF

    Invesco S&P World Information Technology ESG UCITS ETF

Sector ETFs can be effective tools for investors to express their views on macroeconomic, demographic or other market factors. However, ETFs that follow standard sector indices may not be suitable for investors who wish to align their portfolios with their personal principles.

Gary Buxton, Head of EMEA ETFs and Indexed Strategies at Invesco, said: ‘The strength of capital flows into ESG strategies in recent years is partly due to investors’ willingness to incorporate sustainability into portfolios. In addition to equity and fixed income holdings, we now see many of these investors turning their attention to more targeted exposures, such as sectors, and rightly demand a similarly robust and thoughtful process for ESG integration.”

S&P DJI recently released the report ‘Applying Sustainability to Sector Indices’, which examined the relevance of sector investments. The report found that a significant portion of a stock’s performance can be attributed to its sector and less to overall market movements. Furthermore, sector returns vary widely from year to year, as macroeconomic factors affect specific sectors differently.

Jas Duhra, Global Head of Sustainability Indices at S&P SJI, said, “We are very pleased that Invesco has licensed the S&P Developed Ex-Korea LargeMidCap ESG Enhanced sector indices for its new exchange-traded funds. As a pioneer in the development of sustainability-focused indices, S&P DJI continues to launch innovative indices for investors who wish to integrate environmental, social and governance factors into their investment strategies. These broad indices, which use advanced optimisation techniques, offer diversification and seek to take into account the financial materiality of each sector.

Index methodology

Each index seeks to improve its ESG profile and reduce its carbon footprint, while minimising country and security deviations from the standard sector index.

Stocks are excluded based on:

    involvement in activities related to tobacco, controversial weapons, oil sands, light weapons, military procurement or thermal coal;

    being classified as ‘non-compliant with the principles of the UN Global Compact’;

    have an S&P DJI ESG Score that falls within the lowest 20% of stocks in the standard index (or no ESG Score at all);

    have carbon intensity levels that fall within the worst 10% of companies in their GICS industry group and the broader S&P Developed Ex-Korea LargeMidCap index (or have no carbon intensity data); or

    be exposed to potential ESG risk incidents and/or controversial activities, as deemed by S&P DJI.

The remaining stocks are then optimised and re-weighted, with the aim of achieving the following two results

    an increase in the S&P DJI ESG Score equivalent to the score that would be obtained by eliminating the 25% of securities with the lowest ESG score (based on free market capitalisation) of the GICS industry group;

    a 30% reduction in carbon intensity relative to the standard index or, if lower, a reduction in carbon intensity equivalent to eliminating stocks with carbon intensity levels ranked in the worst 25% of companies in both the GICS Industry Group and the standard index.

Chris Mellor, Head of EMEA Equity ETF Product Management at Invesco, said: “By tracking these ESG Enhanced sector indices, our new ETFs have the potential to deliver significant and measurable improvements beyond what would be achieved with exclusions alone. The ETFs should also achieve sustainability goals while avoiding the risk of overweighting a small number of securities. This is important because, in addition to ESG improvements, we wanted to ensure that our ETFs are suitable for investors who want similar overall profiles to standard indices.”

Source: ETFWorld.co.uk