Aberdeen Standard Investments has partnered with MSCI to launch a range of customised climate change ESG index funds.
The range excludes companies with sustainability risks in particular companies engaged in very serve ESG controversies such as UN Global Impact fails, controversial weapons, tobacco production and distribution, thermal coal and unconventional oil and gas.
The index funds also improve green revenues by 50%, reduce carbon intensity by 50% and enhance aggregate ESG scores from 10% to 20% versus the relevant parent index.
The three index funds are:
ASI Sustainable Index World Equity fund
ASI Sustainable Index UK Equity fund
ASI Sustainable Index Emerging Markets Equity fund
The UK and world index funds launched on 12 November and have total expense ratios (TERs) 0.15% while the emerging markets strategy is set to launch in Q1 2021 with a TER of 0.25%.
Aimed at pension funds and other institutional investors, the range has been launched within a tax efficient Authorised Contractual Scheme (ACS) structure.
This means each index fund is “looked through” and investors are treated for tax purposes as if they held their proportionate share of the underlying investments directly.
David Wickham, global head of quantitative investment solutions (QIS) at ASI, commented: “The index funds are designed to provide institutional investors with an opportunity to address their sustainability concerns through traditional indexation.
“They target broad improvements in sustainability outcomes – enhanced portfolio-level ESG scores, increased ‘green’ revenues, and reduced carbon intensity in addition to specific (financially-based) exclusions – with risk controls to retain the benefits of traditional indexing.
“Accordingly, they may represent a suitable core investment with the added benefit of tax transparency for fund investors.”
Caroline Silander, head of equity indexation at ASI, added: “The launch of our sustainable indexation range is a natural extension of our indexing capability and, while there are a growing number of sustainable equity indices to choose from, we felt there was a gap in the market as many index designs tend to be highly specific in their purpose.
“However, these approaches often induce greater tracking error and greater index/portfolio turnover than we believe is justifiable for those seeking a broad market-capitalisation weighted indexing approach.”