Sydney-based ETF issuer BetaShares has launched a new fixed income ETF in Australia providing exposure to a globally diversified portfolio of ‘green’ and ESG-screened bonds. The fund is the second ESG-screened fixed income ETF to launch in Australia.
The BetaShares Sustainability Leaders Diversified Bond ETF – Currency Hedged (GBND AU) has listed on the Australian Securities Exchange and comes with an expense ratio of 0.49%.
It is linked to the Solactive Australian and Global Select Sustainability Leaders Bond TR Index, which is composed of investment-grade bonds that meet strict responsible investment standards.
To be eligible for inclusion, green bonds must be denominated in AUD, USD, or EUR and have at least 300 million of their respective currency outstanding. They must also be classified as ‘green’ by the Climate Bond Initiative, which verifies that proceeds from their issuance are applied exclusively to projects that promote environmental sustainability.
If a bond is not recognised as a green bond, it must pass through an ESG screen that leverages the expertise of Australian superannuation fund Future Super to exclude issuers engaged in activities deemed inconsistent with responsible investment considerations.
The screen removes issuers with any revenue exposure to fossil fuels, gambling, tobacco, uranium, nuclear energy, weapons, animal cruelty, pornography or activities that negatively impact world heritage or high conservation areas, as well as issuers with more than 20% exposure to alcohol or 33% exposure to junk foods.
Issuers with evidence of human rights violations or with no women directors on their board are also ineligible for inclusion. Finally, bonds must be denominated in AUD and have at least A$500m outstanding.
All bonds, green or ESG-screened, must also bear a fixed-rate coupon, maintain an investment-grade rating and have at least one year remaining until maturity.
Constituents are weighted by market value outstanding subject to a 10% cap on sovereign issuers, a 5% cap on any other issuer and a currency scaling provision that sets the cumulative weight of AUD-denominated bonds to half the index’s total exposure.
The ETF has been seeded with A$12m from Future Super and hedges foreign currency exposure relative to the Australian dollar.
The fund is the second ESG-screened fixed income ETF to launch in Australia following the introduction of the Vanguard Ethically Conscious Global Aggregate Bond Index Hedged ETF (VEFI AU) in September 2018.
This fund tracks the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index providing access to government, mortgage-backed, and corporate bonds globally while screening out issuers with revenue exposure to fossil fuels, alcohol, tobacco, gambling, weapons, nuclear power, and pornography. It comes with an expense ratio of 0.26%.
Source ETF Strategy