ETFs aligned with EU Climate Benchmarks

Climate Benchmarks were established to help socially responsible investors judge opportunities according to a slate of climate-minded factors. As climate action become more stringent, the European Union (EU) introduced two new benchmarks in 2020 that further promote the green agenda. In this article, you'll learn more about these benchmarks and how you get on board with Exchange-Traded-Funds (ETFs).

What are EU Climate Benchmarks?

Climate Benchmarks are guidelines that incorporate specific goals related to greenhouse gas (GHG) emission reductions and the transition to decarbonized economies. The benchmarks help promote sustainable investment in companies that are aligned with these goals through proper selection and weighting of their underlying assets.

Two types of climate benchmarks have been included in the Benchmark Regulation:

• Climate-Transition Benchmark (CTB)
• Paris-Aligned Benchmark (PAB)

What are the objectives of EU Climate Benchmarks?

• Promoting reallocation of capital towards a low-carbon and climate-resilient economy.
• Allowing a significant level of comparability of climate benchmarks while leaving benchmarks’ administrators with an important level of flexibility in designing their methodology.
• Providing investors with an appropriate tool that is aligned with their investment strategy.
• Increase transparency on investors’ alignment with the needs of ambitious climate scenarios.
• Preventing greenwashing.

What are the main differences between PAB and CTB?

While both benchmarks focus on a decarbonization level of at least 7% on average per year, there are several differences.

For example:

• PAB's goal is to limit the increase in global average temperatures to well below 2°C above pre-industrial levels.
• PAB allows for higher decarbonization of the investment relative to the underlying investable universe (50% compared to 30%).
• PAB excludes companies involved in fossil fuel exploration and GHG-intensive electricity producers, while CTB tolerates them.
• PAB targets opportunities with a significantly enhanced green share/brown share ratio, meaning that PAB focuses on including more companies with low carbon footprint (green shares) than companies with higher carbon footprint (brown shares).

In a nutshell, PAB is stricter and more ambitious with its thresholds and exclusions.

For more details, we invite you to read the Handbook on Climate Benchmarks and benchmarks’ ESG disclosures.

Investing in PAB and CTB aligned ETFs

Investing in PAB or CTB aligned investments can help promote the green agenda and provide hedging against a wider array of climate transition risks, including technology, market risk, policy & legal risk, and reputation risk. EU CTBs can suitable for investors whose objective is to protect assets against investment risks related to climate change and accompany the transition to a low-carbon economy. EU PABs, on the other hand, can be perceived as tools for investors who want to be at the forefront of the transition, favoring today the players of tomorrow's economy. 

If you're looking for a diversified exposure through ETFs, here are some of the largest PAB and CTB aligned funds:

• Amundi MSCI World Climate Transition CTB UCITS ETF DR (LWCR): $872 million
• BNP Paribas Easy FTSE EPRA NAREIT Developed Europe ex UK Green CTB UCITS ETF (GREAL): $248 million
• Amundi MSCI World Climate Paris Aligned PAB UCITS ETF DR (PABW): $157 million
• HSBC MSCI World Climate Paris Aligned UCITS ETF (HPAW): $135 million
• Franklin S&P 500 Paris Aligned Climate UCITS ETF (USPA): $94 million
• Tabula EUR IG Bond Paris-aligned Climate UCITS ETF (TABC): $91 million

You can check out the full list of EU Climate Benchmarks aligned ETFs here:

• PAB ETFs
• CTB ETFs

Keep reading:

• Invest in UN SDG 9: Industry, Innovation and Infrastructure with ESG ETFs
• Top ESG ETFs of November 2021
• How to invest sustainably: ESG vs SRI vs Impact Investing

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