Invesco ETF announces the launch of an ESG US equity ETF focused on climate transition and based on a forward-looking model

Invesco ETF is launching a new ETF designed to replicate (minus fees) a version of the S&P 500 Index aligned to a 1.5°C climate scenario built using the forward-looking Transition Pathway model.

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By ETFWorld.co.uk

Gary Buxton, Head of ETFs and Indexed Strategies EMEA at Invesco

The Invesco S&P 500 CTB Net Zero Pathway ESG ETF incorporates Trucost’s Transition Pathway data into the forward-looking component of the S&P index methodology, a crucial factor when it comes to mitigating climate risk and gaining greater exposure to the opportunities of the decarbonisation transition. The ETF is classified as an Article 8 ETF under SFDR.

Gary Buxton, Head of ETFs and Indexed Strategies EMEA at Invesco, says: ‘ Many investors who want to include climate-related objectives in their portfolios also expect to achieve similar performance to standard benchmarks. These two objectives can be contradictory, so investors need to define the exact objective of their investment and the performance gap they are willing to accept compared to the benchmark. We believe that our new ETF offers investors the opportunity to benefit from both a reduced spread and a more coherent path towards decarbonisation ’.

Invesco’s new ETF aims to replicate the S&P 500 Climate Transition Base Pathway-Aligned ESG Index (less fees), which has more stringent ESG exclusions than the Climate Transition Benchmark (‘CTB’). This index is constructed from the original S&P 500 index by excluding stocks involved in tobacco, controversial weapons, oil sands, small arms, military contracts or thermal coal; that do not comply with the principles of the United Nations Global Compact; or that are not covered by the index provider’s ESG data platform.

The index then applies an optimization strategy to meet the targeted climate and ESG objectives while minimizing the difference in constituent, sector and industry weightings relative to the S&P 500. Some of these objectives are (1) alignment with the minimum standards of the EU climate transition benchmarks; (2) alignment with a 1.5°C climate scenario using the transition model selected by the index provider; and (3) an increase in the weighted average global ESG rating of the S&P such that it exceeds that of the S&P 500 after the removal of the bottom 20% of ESG rated stocks.

According to Thibaud de Cherisey, Head of ETF Distribution EMEA at Invesco : ‘ The European Commission has established two reference frameworks for climate investment: Climate Transition and Paris-Aligned Benchmarks (PAB). They share the same ultimate objective, but one of the differences is that BTC indices do not ban oil and gas companies as do the stricter PAB indices. This allows a BTC index, and therefore our ETF, to follow a more realistic path towards decarbonisation, recognising that fossil fuels will continue to play an important role during the transition to cleaner energy sources.’

Jas Duhra, Global Head of Sustainability Indices at S&P DJI added: ‘ We are pleased that Invesco has licensed the ESG S&P 500 Climate Transition Base Pathway-Aligned Index for its new ETF. The index is designed to meet the requirements of the CTB benchmarks while incorporating additional climate and sustainability factors, such as forward-looking transition pathway data. As a pioneer in the development of sustainability and climate-focused indices, S&P DJI continues to offer innovative index solutions to investors and market participants in Europe and around the world to help them navigate the transition to a low-carbon economy .’

The core requirements of the BTC and BAP are based on companies’ historical greenhouse gas (GHG) emissions. The S&P 500 Climate Transition Base Pathway-Aligned ESG index goes further by also incorporating a forward-looking approach to companies’ future alignment with the 1.5°C scenario.

This fund is Invesco’s first ETF designed to replicate a BTC index, and extends the range of ESG equity and bond ETFs that the company now offers its investors. The 35 funds on offer include ETFs tracking PAB indices, thematic exposures focused on clean energy technologies and actively managed ESG strategies.

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Source: ETFWorld.co.uk