DWS has launched a global government bond ESG ETF based on a framework developed with FTSE Russell.
The Xtrackers ESG Global Government Bond UCITS ETF (XZWG) listed on the Deutsche Boerse today and will list on the London Stock Exchange tomorrow, 15 December, with a total expense ratio of 0.20%.
XZWG tracks the newly-created FTSE ESG Select World Government Bond Developed Markets index, part of the FTSE ESG Government Index Series with more “stringent” ESG tilts.
The index aims to provide a “meaningful” ESG tilting with a “comprehensive ESG sovereign bond assessment and weighting framework” using 41 ESG indicators.
It means the index will be overweight higher ESG performing countries and underweight lower-performing countries while excluding countries not designated as “free” by the non-profit organisation Freedom House.
ESG scores for each country will be calculated across three performance pillars ‘E’,’S’ and ‘G’.
Environmental performance will be measured through energy, climate and resource metrics, while social performance will consider inequality, employment, human capital, health and social wellbeing.
Governance will be measure corruption, government effectiveness, political stability, regulatory quality, rule of law and voice and accountability.
Hedged US dollar, euro and sterling shares classes of the ETF will also be available with a slightly increased TER of 0.25%.
Simon Klein (pictured), head of passive sales at DWS, said: “XZWG aims to provide enhanced ESG characteristics while maintaining attractive risk-adjusted performance metrics.
“The goal is to provide a depth of analysis that moves the market forward in terms of providing intelligent and nuanced ESG exposure.”
Incorporating ESG factors into government bonds has been one of the biggest challenges facing the industry, particularly in developed markets as investors struggle to separate governments on their ESG performance.
It is also considered extremely difficult for investors to engage with governments on ESG issues.