Industry Updates

Fidelity proposes to add Paris-aligned climate benchmark to corporate bond ESG ETF

FSMF launched in March 2021 as one of the firm’s first bond ETFs in Europe

Jamie Gordon

a city with a tall tower

Fidelity has proposed to change the reference index of its 18-month-old sustainable corporate bond multi-factor ETF to incorporate Paris-aligned benchmark (PAB) climate criteria.

The actively-managed $736m Fidelity Sustainable Global Corporate Bond UCITS ETF (FSMF) launched last March as part of the firm’s double entry into European fixed income ETFs.

If the proposals are supported by shareholders, FSMF will be renamed to the Fidelity Sustainable Global Corporate Bond Paris-Aligned Multifactor UCITS ETF and its reference benchmark will change from the Bloomberg Global Aggregate Corporate to the Solactive Paris Aligned Global Corporate index.

While the ETF does not track an index, Fidelity said FSMF would bear close resemblance to the volatility and carbon footprint of the Solactive benchmark if the changes are enacted.

The overhaul would also see a change to FSMF’s investment policy including a process of choosing securities based on maximising returns and aligning carbon emissions versus its benchmark, as well as selecting investments in keeping with Article 9 of the Sustainable Finance Disclosure Regulation (SFDR).

This would mean all constituents would be issued by companies contributing to an environmental objective, doing no significant harm, meeting minimum safeguards and displaying good governance.

In turn, FSMF would be deemed to have a sustainable objective and would be classified as Article 9 instead of Article 8 under SFDR.

Fidelity said the changes would also significantly reduce exposure to climate risk and potential for bond drawdown while providing a similar level of currency, credit and duration risk relative to its current benchmark.

If passed, the changes are expected to be effective from 30 September. 

In a statement, Fidelity said: “In view of an increasingly climate conscious investor base, we believe it to be in the best interests of the fund to evolve its investment objective and policy to incorporate climate objectives.

“This change aims to improve the sustainable outcome of the fund's portfolio, while providing a similar or enhanced risk/return profile.”

Climate metrics will not be added to the $106m Fidelity Sustainable USD EM Bond UCITS ETF (FSEM) which launched alongside FSMF last March.

In June, Fidelity updated the investment process of its six research-enhanced ESG ETFs to incorporate climate awareness and to align their portfolios with net zero pathways.

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