DWS is to close its €70 million European energy ETF after MSCI altered the sustainability metrics of the underlying index.
In a statement, the German asset manager said, “While the board of directors is supportive of changes which enhance the sustainability features of ESG indices in general, in this situation, the implementation at the level of the reference index would result in the majority of current constituents, which are closely associated with the European energy market, being removed.”
It added there was no suitable reference index for the ETF to switch to and it would shutter the ETF on 14 March.
The Xtrackers MSCI Europe Energy ESG Screened UCITS ETF debuted in September 2021 alongside an additional nine funds that target individual global industry classification (GICS )defined sectors of the developed European equity market.
Each ETF in the suite tracks an ESG-Screened index from MSCI which, historically, excluded violators of UN Global Compact principles – companies associated with controversial, civilian, and nuclear weapons, or tobacco, and firms deriving significant revenue from thermal coal or oil sands extraction.
From 1 March, however, MSCI enhanced its ESG-Screened methodology by also removing companies embroiled in severe ESG-related controversies and firms deriving more than 5% of their revenue from palm oil or arctic oil & gas.
Additionally, each ESG-Screened index now also targets a 30% reduction in total carbon intensity -based on Scope 1, 2, and 3 emissions – relative to its comparable non-ESG-Screened universe.
To achieve their lower carbon profiles, the indices remove the companies representing the largest carbon emitters until the target is met.
MSCI has been implementing a raft of changes to strengthen the metrics on its ESG Screened index range.
These include new ESG-driven revenue screens, additional exclusion criteria and a greenhouse gas intensity reduction target, which also impacted BlackRock’s $15bn ESG screened ETF range.
The index provider said it was looking to strengthen the suite’s ESG credentials to reflect regulatory development in Europe.
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