The rising tide of environmental, social, and governance (ESG) investing is bringing in a wave of green bonds into the space, putting a pair of FlexShares exchange traded funds in the spotlight.
The proliferation of green bonds has been making its mark in European countries, but rising demand from U.S. investors is bringing more fixed income ESG products to the market. Overall, it’s becoming a global phenomenon that all countries are taking advantage of as investors align their social principles with portfolio strategies.
“A wave of green sovereign debt is flooding markets,” an Economist article said. “Britain issued its first such bond in September, alongside other new issuers, such as Colombia and Spain. They join at least 20 countries that already issue green debt, notably Germany, which is well on its way to building a ‘green curve’ of bonds across several maturities.”
“Governments have together raised more than $100bn through the green route so far this year,” the article added. “And later this month the European Union is due to join the club. Its €250bn ($290bn) green-borrowing programme stands to make it the world’s largest sovereign issuer of the instruments.”
A Pair of Climate Change ETFs
ESG strategies can be sliced and diced into various niche investing categories. FlexShares did just that with climate change and a pair of newly released funds: the FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (FEIG) and the FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY).
FEIG seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Northern Trust ESG & Climate Investment Grade U.S Corporate Core Index. The fund applies a multi-dimensional ESG framework, incorporating exclusions across ESG controversies and business involvement while seeking to deliver ESG uplift.
At the heart of the strategy is the Northern Trust ESG Vector Score, which is focused on financial materiality and aligned with industry standards, the Sustainability Accounting Standards Board (SASB), and the Tax Force on Climate Related Disclosures (TCFD), integrating not only historic metrics and indicators, but also those that assess how exposed a company may be to future risks and opportunities. It places intentional emphasis on reducing climate transition risk by reducing ISS carbon emissions intensity and improving ISS Carbon Risk Rating.
FEHY seeks investment results that correspond generally to the price and yield performance of the Northern Trust ESG & Climate High Yield U.S Corporate Core Index. FEHY uses the same Vector Score strategy that FEIG does in order to sift through a vast universe of high-yield options in order to find debt holdings that emphasize climate change while also offering the substantial-yield fixed income that investors crave in today’s low-rate environment.
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