ETF Built Around Paris Climate Accord to Tackle Greenwashing

(Bloomberg) -- A new exchange-traded fund will link to bonds issued by companies meeting emissions targets outlined by the Paris climate agreement.

Tabula Investment Management is listing the ETF on Germany’s Xetra exchange on Thursday, targeting investors disillusioned with the so-called greenwashing -- exaggerated claims of environmental compliance -- that’s dogged the growth of ethical investing.

The fund will track an index of high-grade euro-denominated bonds from firms with greenhouse gas emissions at least 50% lower than average and annual decarbonization rates of at least 7%. It’s launching with 25 million euros ($30.4 million) of assets and Tabula aims to grow it to at least 200 million euros this year, according to a statement.

The Paris Agreement is a legally binding international treaty signed by 196 countries that sets out guidelines to limit global warming through cuts to carbon emissions.

It’s becoming a more prominent feature in finance-industry guidelines on environmental, social and governance investing. Aligning emissions targets with the agreement was one of the key steps recommended last month by the International Capital Markets Association for borrowers seeking to fund climate-change projects.

Still, concerns about companies embellishing environmentally-friendly achievements remain. In December, French and Dutch financial regulators called for tighter oversight of ESG data and ratings.

By linking the fund to the Paris requirements, Tabula is taking a stricter approach to ESG investment, which still lacks a clearly defined framework despite efforts from regulators and industry bodies.

“The Paris benchmark is really the key,” Michael John Lytle, Tabula’s chief executive officer, said in a telephone interview. “It’s specific, impactful and there’s not a whole lot of room for maneuver.”

Interest in ESG strategies has exploded in recent years as new generations of investors prioritize assets that meet criteria shaped around sustainability and other concerns. The coronavirus pandemic is giving the market a further boost by spurring fundraising for socially beneficial projects.

In the exchange-traded world, two funds from BlackRock Inc. and Amundi SA are in a tight contest to become the first to reach 2 billion euros, about a year after a similar race to the 1 billion-euro line.

Read more: Emitters-Turned-Climate Champions Get New Disclosure Guidelines

While the Tabula fund is the first bond ETF linked to the Paris accord, it’s unlikely to be the last.

“The rest of the market is maybe a quarter or two behind us,” said Tabula’s Lytle. “Everyone knows this is the right thing.”

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