This year has been a significant one for environmental, social and governance (ESG), with assets flowing into the funds and new offerings joining the market. State Street Global Investors branched out into a new area today, rolling out its first corporate bond ETF that relies on ESG criteria.
The SPDR SASB Bloomberg Corporate Bond ESG Select ETF (RBND) lists on the NYSE Arca and comes with an expense ratio of 0.12%.
RBND tracks an index created by Bloomberg in partnership with the Sustainability Accounting Standards Board (SASB). The benchmark comprises investment-grade corporate bonds denominated in U.S. dollars with at least $300 million outstanding and more than a year of remaining maturity.
Potential holdings are first screened for involvement in extreme controversies, weapons, violations of the United Nations Global Compact, coal mining and tobacco, according to the prospectus.
From there, the index uses two levels of scoring, one for general ESG issues related to the company’s industry classification and the other specifically targeting corporate governance, to create the “R-Factor” score. An optimizer determines how weights are designated, with the goal of maximizing exposure to the index’s overall R-Factor score and aligning its risk profile as much as possible with the parent index, the Bloomberg Barclays US Corporate Index, the document says.
At the end of September, the index included 3,228 securities. It is rebalanced monthly.
There are 15 other fixed income ETFs that incorporate ESG criteria into their methodologies. The largest covering investment-grade corporates is the $626 million iShares ESG Aware USD Corporate Bond ETF (SUSC), which comes with an expense ratio of 0.18%.
Contact Heather Bell at [email protected]