We have three main concerns on behalf of ETF investors. First, some ESG metrics provided by the ESG scoring agency used by the index are misleading, as the issuer is not assigned an ESG score by the agency that is being used for index construction. Second, the index construction should capture coal even when not flagged by ESG data providers, and lastly, ETF managers should capture coal exposure even when the index includes it.
The ETF manager explicitly states that the fund should exclude thermal coal, and has relative freedom to not buy bonds included in the index. Thus, we opine that methodology is failing across ESG data provisioning, index construction and ETF construction and as a result, investors may have been misled to believe that they will not be exposed to funding thermal coal when investing in the product.