Invesco has launched an active government bond ETF with an ESG tilt.
The Invesco EUR Government and Related Green Transition UCITS ETF (EGVD) is listed on the Deutsche Boerse with a total expense ratio (TER) of 0.15%. The ETF will list on the Borsa Italiana in due course.
EGVD will invest in government bonds issued by European issuers from developed countries with an investment grade rating.
Emerging market issuers will also be considered if they are domiciled in the eurozone.
On its ESG criteria, Invesco said bonds will be selected regarding international human rights principles and screened out based on “controversial activities”.
It will also allocate a minimum of 20% to green bonds subject to “specific exposure and liquidity considerations”.
The ETF will be benchmarked to the Bloomberg Euro Aggregate Treasury index.
Gary Buxton (pictured), head of EMEA ETFs and indexed strategies at Invesco, said: “Governments are playing an increasingly important role in addressing social and environmental concerns.
“Through the issuance of bonds from US Treasuries and government-related agencies, critical projects are being financed in areas such as renewable energy, green buildings, water and waste management and clean transportation.
“We believe the green bond market will continue to develop, providing not only funding for the necessary infrastructure but also increased opportunities for our ETF investors.”
Erhard Radatz, senior portfolio manager for systemic and factor investing at Invesco, said incorporating ESG into government bond portfolios poses two main challenges which it hopes to solve via a “systematic” portfolio construction approach.
“First, differentiation between issuers is more difficult than in the corporate market because almost all European government bond issuers conform to common ESG standards.
“Secondly, overweighting green bonds, social bonds and sustainability-linked bonds would lead to a heavy tilt towards government-related bonds and longer durations relative to the European government bond market.”
Earlier this month, Invesco launched a range of four ESG ETFs offering exposure to global energy, financials, healthcare and tech sectors.