LONDON - Xtrackers II, an investment company with variable capital based in Luxembourg, has announced significant changes to the index methodology of its ESG Global Government Bond UCITS ETF, which will take effect today. The changes, which were initially declared on September 16, 2024, by FTSE Fixed Income LLC, the index administrator, include updates to the environmental, social, and governance (ESG) data sourcing, the introduction of social violations exclusion criteria, and the implementation of minimum green bond exposure requirements.
The ESG scores used to assess countries within the reference index, FTSE ESG Select World Government Bond Index - DM, will now be derived from the Sustainable Sovereign Risk Methodology (2SRM), an updated version of the Beyond Ratings Sovereign Risk Monitor. This shift is designed to enhance the assessment of country risks and management related to ESG factors.
Additionally, the reference index will exclude countries with social violations recognized in international treaties, UN principles, and applicable national laws. Countries listed as non-cooperative tax jurisdictions by the European Union will also be excluded from the index.
A new feature of the index is the introduction of a green bond tilt, ensuring that a minimum threshold of the index's bond exposure is met while maintaining the ESG-tilted country exposures and aligning the index duration with that of the broader index universe.
As a result of these updates, the Xtrackers II ESG Global Government Bond UCITS ETF will see its minimum share of sustainable investments increase from 0% to 5%. It's important to note that while the Sub-Fund will allocate a minimum proportion of its assets to sustainable investments as defined by the Sustainable Finance Disclosure Regulation (SFDR), it does not have sustainable investment as its primary objective.
Shareholders who find these changes incompatible with their investment criteria have the option to redeem their shares free of charge, as per the terms outlined in the latest prospectus. Updated documents, including the revised prospectus and key information document, will be available on the Xtrackers website around today's date.
This announcement is based on a press release statement, and the new strategy reflects a growing trend in the investment industry to integrate ESG considerations into financial products. However, the product is based overseas and does not fall under UK sustainability investment labeling and disclosure requirements.
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