XTB, an Australian-based provider of ASX-traded corporate bonds, is offering a new fixed income portfolio of environmental, social, and governance (ESG)-approved securities aimed at ethical investors.
The XTB Emerald Fixed Income Portfolio is a managed portfolio of individual bond units (XTBs). The underlying bonds are issued by some of Australia’s top companies that fit the screening criteria of The Emerald Club, a responsible investment platform provider. XTB uses Bloomberg ESG data to select the companies that have a strong record of mitigating ESG risks.
The XTB Emerald Fixed Income Portfolio was launched because individuals and financial advisers have been demanding bond-based products that are available on the retail market and that fit customers’ requirements for responsible investments, says Richard Murphy, XTB CEO.
“It’s been interesting and exciting,” he says. “Its’s true to say that three years ago, an option like this was not being considered, but it’s demand driven. Our sales team came across investor groups that asked the question if we do anything in the space…
“When you think about bonds and ESG, a bond is just a loan – it doesn’t behave itself badly or well, whereas a company does. People think of governance level issues first – how a company behaves. Those considerations started in equities. The bond market came in behind equities. Then you have the accessibility – general accessibility to bonds is bifurcated– institutional investors get access to the bond market – as they have done for 100 years or more, whereas individual investors have less access to bonds.”
XTBs are securities on ASX. The underlying security is a corporate bond, held in a sub-trust. Investors can select from more than 50 individual bonds, and each individual XTB reflects the maturity date and coupon payment of its respective corporate bond. The yield and price of each XTB is expected to reflect the yield and price of the underlying bond, after fees and expenses. All XTBs mature at $100, XTB explains on its website.
Emerald Club screens the 50 securities available through XTB, says Simon Riordan, regional manager at XTB. There are currently around 25 bonds that meet Emerald Club’s screens and are available for the portfolio. The Emerald Club runs a screen, by conducting an analysis of ESG factors based on a company’s annual disclosure of various metrics in its corporate social responsibility report. Screens include – total greenhouse gas emissions, water intensity per sales, and renewable energy use.
“Emerald Club are doing the green screens for us and using their ESG ratings,” he says. “We do include one or two climate bonds –Climate Bond Initiative-certified bonds NAB and ANZ. The rest of the bonds are subjected to a negative screen.”
XTBs generated significant interest from investors in 2017, with funds under management up 117% to $265 million in 2017, from $122 million a year earlier, XTB says.