Tabula launches two share classes for Paris-aligned climate bond ETF

50% initial reduction in GHG emissions compared with the broad benchmark

Tabula Investment Management has launched two sterling-hedged share classes of the Tabula EUR Ultrashort IG Bond Paris-aligned Climate Ucits ETF. 

Listed on the London Stock Exchange, the first share class has the ticker TUGB LN. 

The second share class is the firm’s first non-exchange traded share class in its ETF range, and provides institutional investors with a daily dealing Ucits share class of the fund.

Green bonds are propelling the worldwide ESG debt market, according to analysis by Bloomberg Intelligence, with issuance up 8% so far in 2023 on last year.

The resilience of the green bond market in the first nine months of the year saw issuance exceed $505bn, or 48% of total sustainable issuance. 

Tabula’s EUR Ultrashort IG Bond Paris-Aligned Climate Ucits ETF is an Article 9 ETF. It provides significantly lower portfolio greenhouse gas (GHG) emissions and has enhanced ESG profile when compared to existing ultrashort solutions, according to the fund manager.

The investment strategy for the new ETF is designed to help contribute to limiting global warming to 1.5°C in accordance with the Paris Agreement, while integrating ESG criteria into the security selection process. 

This includes a 50% initial reduction in GHG emissions compared to the broad benchmark and a 7% year-on-year annual reduction.

It also uses ESG screening, including norms-based, for example the UN Global Compact, as well as controversies and certain business activities (such as alcohol, adult entertainment, gambling, controversial weapons, civilian firearms, nuclear power, GMO, nuclear weapons, cannabis).

Liquidity and holdings constraints have also been applied to the ETF to improve its liquidity profile while maintaining similar characteristics to the broad underlying benchmark

For this ETF, Tabula worked with Solactive and ISS ESG to develop a Paris-aligned benchmark for euro-denominated ultrashort investment grade bonds. 

The Solactive ISS Paris Aligned Select 0-1 Year Euro Corporate IG Index, which Tabula’s ETF tracks, has a strong correlation with its parent index, the Solactive 0-1 Year Euro Corporate IG Index. 

However, the new index provides a 50% greenhouse gas emissions reduction compared to its parent, and it also delivers a 7% annual emissions reduction.

The investment universe for the index consists of bonds with a maximum maturity of 1 year. Issuer allocations are capped at 5% of the index.

Tabula CEO Michael John Lytle, said: “Meeting the goals of the Paris Agreement requires a multi-pronged approach. Investors must combine targeted allocations to specialist climate solutions with a shift of large asset pools into broad climate-friendly investments.”

“The launch of these sterling-hedged share classes shows our commitment to UK investors looking for interesting yield with low volatility. The non-exchange traded share class brings many of the traditional benefits of ETF investing, but makes it available to those without the tools to trade ETFs.”