LGIM introduces its first Paris-aligned equity ETFs

Legal and General Investment Management (LGIM) has introduced its first ETFs that adhere to the carbon reduction goals of the Paris Agreement.

The funds, which target stocks from the US and developed markets in Europe, have been created by enhancing the methodology underpinning two of LGIM’s sustainability-focused ETFs – the $850 million L&G US Equity Responsible Exclusions UCITS ETF (RIUS LN) and $100m L&G Europe Equity Responsible Exclusions UCITS ETF (RIEU LN).

The ETFs track the Foxberry Sustainability Consensus US Index and Foxberry Sustainability Consensus Europe Index which are constructed from initial universes comprising the largest 500 US-listed and largest 600 developed European-listed stocks, respectively.

The indices’ original methodology utilized a committee-based approach to identify companies that pass a range of ESG exclusion guidelines related to environmental, governance, sustainability, workplace equality, and ethical concerns, as well as adherence to UN sustainable development goals and business-practice norms. Firms that passed this extensive screening process were then weighted by float-adjusted market capitalization.

Following consultation with index provider Foxberry, the methodology has been further enhanced to ensure compliance with the requirements for EU Paris Aligned Benchmarks.

Specifically, Paris Aligned Benchmarks require the exclusion of firms involved in controversial weapons and tobacco as well as companies that derive significant revenue from weapons, coal, fossil fuels, natural gas, and high-carbon-emitting electricity production.

Index constituents are then weighted so as to achieve an immediate 50% reduction in carbon intensity and fossil fuel reserves relative to the parent universe as well as a further 7% annual decarbonization going forward, aligning with a trajectory to limit global warming to 1.5°C above pre-industrial levels by 2050.

The funds are listed on London Stock Exchange, Deutsche Börse Xetra, and Borsa Italiana and are passported for sale across Europe.

The L&G US Equity Responsible Exclusions UCITS ETF and L&G Europe Equity Responsible Exclusions UCITS ETF come with expense ratios of 0.12% and 0.16%, respectively.