Being asked to choose a favourite ETF launch from the 240 plus debutants that started trading in Europe during 2024 presents a painfully difficult decision for this thoroughly indecisive investor and my pick after some prolonged dithering is the BNP Paribas Easy Sustainable US UCITS ETF, known more easily by its ticker AUSSR.
This ETF aims to appeal to environmentally conscious investors that also want exposure to the booming US stock market. AUSSR employs an ‘active beta’ methodology that allows the ETF to closely follow the performance of the S&P 500 benchmark even though it will also exclude a significant number of US companies based on BNP Paribas Asset Management’s proprietary ESG methodology alongside evolving ESG regulations.
Just 237 companies are currently held as constituents of AUSSR, which also aims to limit any tracking error to the S&P 500 to as little as 1.5%. An investor in AUSSR is effectively being invited to bet that the exclusion of dozens of companies based on environmental, social and governance metrics will not damage the returns of the ETF compared with the overall US market.
The ETF will apply Paris-Aligned Benchmark exclusion criteria designed to reduce investor exposure to companies with high carbon pollution emissions. Paris-Aligned Benchmarks, or PABs, aim to ensure that investment portfolios that incorporate these indices are compatible with the goal of limiting the rise of global temperatures to less than two degrees Celsius above pre-industrial levels, the target that was agreed at the 2015 Paris climate conference.
The exclusion criteria used by AUSSR means that the ETF has higher weightings in the technology and healthcare sectors and lower weightings in the energy, utilities and financial sectors than SPY, the largest ETF that tracks the S&P 500 index.
However, asset managers that utilise ESG scores in the design of investment strategies are now confronted with a growing political backlash which will be strengthened by the return of a determined climate change sceptic – Donald Trump – to the US Presidency in January. Several Republican-led states have already withdrawn large investment mandates from asset managers for allegedly failing to support US fossil fuel companies.
An investor, however, does not have to be a bleeding heart to understand that every company globally has to do more to reduce carbon emissions to avert environmentally catastrophic global warming which threatens to destroy life on planet earth as we now know it.
So, BNP Paribas are to be commended for pushing ahead with the launch of AUSSR at the start of July since when it has returned around 14.3% and accumulated around €214m in assets.
