Smart beta specialist Ossiam has added an ESG filter to its European equity equal weight ETF to reflect investor demand, the firm said.
The Ossiam STOXX Europe 600 Equal Weight UCITS ETF (S6EW) will switch from tracking the STOXX Europe 600 Broad Market Equal Weight index to the STOXX Europe 600 ESG Broad Market Equal Weight index as investors put ESG “at the core of their investment decisions”.
The ETF will be renamed the Ossiam Stoxx Europe 600 ESG Equal Weight UCITS ETF under the same ticker and the same total expense ratio of 0.35%.
The new index will be composed of 80% of the securities of the parent index – 480 stocks – with each allocated the same weight of 0.2%.
An ESG screen will also be applied, excluding companies that do not comply with Sustainalytics Global Standards Screening, are involved in controversial weapons or have no ESG scores.
Additional exclusion filters will be applied to companies involved in tobacco production, thermal coal and military contracting.
The remaining stocks are ranked in descending order of their ESG scores within each of the 11 Industry Classification Benchmark industry groups.
The top-ranked securities are then chosen until it reaches 80% of the total number of stocks in the parent index.
Paul Lacroix head of structuring at Ossiam, said: “Equal weighting has been one of the most successful smart beta strategies over the past decade, while at the same time a clear trend has emerged of large equity investors putting ESG at the core of their allocation decisions.
“Investors have also learned the lessons of avoiding concentration, trend following and large-cap bias. With those considerations, a combination of equal weight and ESG is a natural evolution for this strategy.”
The move follows several issuers that have started to switch indices into ESG-versions of the same product, sometimes through adding screens and sometimes through changing indexes altogether.