BNP Paribas has moved to launch a further addition to its socially responsible fund range with a new ETF which tracks the Bloomberg Barclays MSCI Euro Corporate SRI Sustainable Reduced Fossil Fuel Index.
What the company says:
Though BNP says 'fossil free', the index offers "reduced exposure" to companies involved in fossil fuels, rather than no exposure. The ETF is a sub-fund of BNP Paribas Easy range and will list on Euronext on 19 February 2019 and on Xetra on 26 February 2019. It is not available to UK investors. Isabelle Bourcier, global head of quantitative and index, said the launch of BNP Paribas Easy Corp Bond SRI Fossil Free UCITS ETF is "part of a dual approach to develop our low carbon footprint SRI offering and our bond index range." At the end of December 2018 BNL managed €1.9bn in ESG index funds.
What the panel says:
Nicolas Rabener, Factor Research
BNP is following other ETF issuers by enhancing their ESG offering via the launch of the Easy € Corp Bond SRI Fossil Free ETF. The portfolio is diversified across 400 Euro-denominated investment grade bonds. The ETF is priced at 20 bps, which is cheaper than iShares' SUSE (0.25%) but more expensive than DWS Xtracker's BBSRTREU (0.16%), and not available to UK investors. It's worth noting that despite the name the ETF is not fossil free, but only seeks a low exposure to companies involved in fossil fuels.
Timo Pfeiffer, Solactive
We can overall observe an increasing demand from our clients regarding ESG strategies, both within the equity as well as the Fixed Income space. The BNP Paribas Fossil Free ETF bears a positive approach, and it is yet another step towards an ESG focused investment world - the trend is moving mainstream. No surprise this is coming from BNP that are very focused on Sustainable investments already since years.
Looking more closely at the structure of the investment approach, I think its approach punishes businesses to some extent for the past instead of looking forward, taking future low-carbon initiatives into account. What do I mean by that? Let's imagine a company with an ESG score below the threshold issues a bond focused on the reduction of fossil fuel usage, hence trying to reduce its carbon footprint. A positive impact with a bond you would probably like to own. Even if it used the proceeds for a project in line with investor's values, the method in practice would render this bond ineligible.
While it encourages the funding of corporations with a positive ESG profile and a low carbon impact, the lack of a bond-specific analysis eventually may lead to the financing of projects that are less green than others."
Henry Cobbe, Elston Consulting
We've seen an increasing trend of some asset owners - particularly universities - move to exclude fossil fuels from their investment portfolios, owing to student and social pressure. Whilst this has thus far been focused on the equity side, it has been more complex to achieve within a bond allocation. BNP Paribas' recent launch could help change that.
Oliver Smith, IG Portfolios
Euro denominated and listed in France, this fixed income ETF is unlikely to enter the portfolios of most UK investors, but its unveiling provides more evidence that SRI could become the standard investment approach for the majority of institutions. Launching with more than €130m in assets is a firm signal that this product will be around for the long run, and with a fee of just 0.2% it offers a viable alternative to more conventional corporate bond ETFs. In the short term you can expect very similar returns, so it will take time to assess whether this approach is both socially responsible and a superior way to generate long term income.
