A recent filing from Nuveen outlines the firm’s plans for a socially responsible bond ETF. The NuShares ESG U.S. Aggregate Bond ETF will join Nuveen’s full suite of domestic and foreign equity ETFs that select and weight stocks according to environmental, social and governance (ESG) criteria.
The fund will track the TIAA ESG U.S. Aggregate Bond Index, which is derived from a “base index” that the filing does not name. However, it covers investment-grade taxable bonds denominated in U.S. dollars.
Interestingly, asset-backed and mortgage-backed securities are included in the index regardless of how they fit in with ESG criteria, while issues from companies that do not release enough publicly available information are automatically excluded.
The evaluation of companies based on their ESG-related characteristics involves separate areas of assessment for each industry.
The environmental aspect centers mainly on how an individual company impacts the environment, while the social aspect relates to how a company interacts with its employees and the communities it operates in or relies on. Governance mainly relates a company’s governance standards and business ethics.
Beyond that, the methodology takes into account how well a company abides by laws, regulations and globally accepted norms, the prospectus said.
Issues from companies that have significant activities in industries deemed controversial are also screened out of the index. Alcohol, tobacco, nuclear power, gambling and weapons all fall under the “controversial” rubric, according to the prospectus.
The methodology takes a slightly different approach with government fixed-income securities, with the government in question being rated based on six ESG risk factors. These factors include natural resources; environmental externalities and vulnerability; human capital; economic environment; financial governance; and political governance.
Securities must meet a minimum-threshold ESG score to be included in the index. Once included, issues are weighted by market value within each sector. Those sectors in turn are assigned weights that correspond with their weightings in the base index, the prospectus said.
Overall, the methodology is similar to the methodology used by Nuveen’s equity ESG funds. The filing did not include an expense ratio, a ticker or a listing exchange.
Contact Heather Bell at [email protected].