Fidelity has introduced further ESG screening to the methodology of its sustainable EM bond ETF.
The actively managed Fidelity Sustainable USD EM Bond UCITS ETF (FSEM) will see ESG portfolio scores introduced with the aim to having an ESG score greater than its benchmark, the JP Morgan ESG EMBI Global Diversified index.
FSEM primarily invests in USD denominated debt securities issued by governments and government agencies in emerging markets. Currently, at least 70% of its assets are in companies with strong ESG characteristics.
In a shareholder notice, the issuer said the changes to the methodology were made to “reflect the evolving sustainable investing landscape and enhance transparency to investors”.
Fidelity added that it would introduce additional exclusions covering ‘behavioural’, ‘fundamental’ and ‘sovereign’ exclusions.
These exclude companies that do not conduct their business with accepted international norms, alongside involvement in activities that are unsustainable, or countries that are performing poorly on three principles relating to governance, respect for human rights and foreign policy.
Earlier this year, BNP Paribas Asset Management launched an active ESG ETF aiming to actively implement ESG criteria versus is benchmark.
Elsewhere, BlackRock switched the index of its emerging markets bond ETF to apply an ESG screening filter to provide a “better proposition” for sustainable investors.
Sovereign bonds and ESG have been historically incompatible due to an ETF issuer's ability to engage and influence governments surrounding their ESG practices being somewhat limited.
