The CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF provides exposure to a portfolio of real estate assets composed of companies who are more energy-efficient and more closely linked to renewable properties than typical green ETFs. This ETF allows for the integration of climate risk into investors real estate investment strategies and exposure to real estate equities with a focus on ESG investments. CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF has some important qualities investors seek in an ETF but is nothing more than average in terms of sustainability.
Credit Suisse Index Funds and ETFs do not invest in companies with business activities in the alcohol, gambling, tobacco, adult entertainment, nuclear power, thermal coal, or controversial weapons industry. The exclusion of companies within those industries is a good step forward for Credit Suisse, especially because most ETFs include companies with business activities within those industries. The exclusion of companies with business activities within those industries is also positive because the number of holdings of this ETF is relatively low. This ETF invests in 312 exchange-traded real estate stocks, as of 7/14/2021. This is a relatively sheer ETF, but unfortunately it still took some digging to find a list of the top 15 holdings. Credit Suisse provides thorough reports on their ETFs by providing asset breakdowns that are useful for investors when analyzing Credit Suisse’s products. I believe Credit Suisse should be more transparent about the underlying holdings of their ETFs and include them on those reports for investors to view.
As of 5/31/2021, the MSCI ESG rating of CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETFs top 10 holdings was an A rating, and the top 10 holdings haven’t shifted much since. The total weight of the top 10 holdings, out of 312 holdings in total, is 27.22%. The rating also indicated that the ESG rating of those top 10 holdings were on an upward momentum, meaning they are improving their ESG practices throughout time. Looking at the asset breakdown of all the underlying holdings by ESG rating momentum, the holdings are relatively healthy with 0.48% listed as having a strong upward movement, 15.95% upward, 68.95% stable, 12.19% downward, 1.35% strong downward, and 1.09% not rated. The percent of holdings on an upward momentum are almost the same as the percent on a downward trend. It should be clear that more holdings have an upward momentum than downward, which is not the case for this ETF whose highest category of underlying holdings have an average MSCI ESG rating of BBB (26.66%). It does not look good for this ETF because holdings are already average, and the rating upward momentum is diminished by holdings with downward momentum.
The CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF is intended to replicate its reference index, the FTSE EPRA Nareit Developed Green Index, which is based on the FTSE EPRA Nareit Developed Index. The CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF provides physical exposure. Meaning that by owning shares of the ETF, investors earn the return of the securities composing the index because the ETF holds them directly.
The FTSE EPRA Nareit Developed Index provides exposure to real estate investment trusts (REITs) and other property companies in developed markets. The CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF adjusts in accordance with the FTSE EPRA Nareit Developed Index, which is based on the green building certification and energy usage as its sustainable investment measures. This means that the parent index of the CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF favor companies with higher green certifications (proportion of its total net leasable area dedicated to producing renewable energy) and lower energy usage scores (average consumption per square meter of net leasable area), according to etfstrategy.com. The FTSE EPRA Nareit Developed Green Index Methodology Overview stated GeoPhy is used to gage how sustainable a real estate company is by using their geolocation dataset from real estate data providers, but does not conveniently list the criteria for investors to view. The FTSE EPRA Nareit Developed Green Index supports investors who seek to integrate sustainable investment considerations into their real estate portfolio, but needs to take into consideration that investors care about the transparency of the investment process.
The problem with the methodology of this ETF is that companies with high energy usage and meaningless green certifications are still invested into, and the weight of the investment is based on how sustainable those two factors are. Meaning that companies with characteristics of high energy use are still invested into, those companies just make up a lower percentage of the portfolio than the high performing sustainable companies within the portfolio. Overall, the system is flawed with the potential to be more sustainable. I think this ETF is not as sustainable as it seems and should not be an ETF in contention for those interested in integrating climate risk into their real estate portfolio. Sustainable real estate is gaining traction and I hope the ETF landscape beyond the CSIF (IE) FTSE EPRA Nareit Developed Green Blue UCITS ETF supports real sustainable efforts.
Credit Suisse is a global investment bank and financial services company based in Zurich, Switzerland. Credit Suisse has some kinks to work through and some money to make up from its last big fallout. Credit Suisse needs to further transparency within and ensure stronger oversight of its financial decisions to prevent major losses and affect the global economy. It was announced in spring 2021 that Credit Suisse’s fallout from the collapse of the private investment firm, Archegos Capital Management, would cost the bank $5.5 M. Archegos Capital Management borrowed from Credit Suisse to finance its investments in stocks. The stocks Archegos invested in skyrocketed and the company asked Credit Suisse for some of the initial cash they had given to secure the money they borrowed. Credit Suisse credited Archegos and soon after the stocks Archegos held plummeted, leaving Credit Suisse with a loss and Archegos to collapse.
Credit Suisse should not have credited Archegos. The collapse shined light on the bank’s outdated risk-management systems that failed to detect the risk and the lack of human interaction with the systems to pass judgement. According to The Washington Post, Deutsche Bank, Goldman Sachs, and Morgan Stanley were able to limit their exposure to Archegos when risk was detected. Credit Suisse’s stability and credibility is slipping, which could hinder their positive strides toward sustainability. Credit Suisse needs bandwidth to do good by their sustainability goals. During 2020, Credit Suisse announced they would provide at least $300 B CHF of sustainable financing to support transitions to renewables, low-carbon energy solutions, and other UN SDG aligned efforts in financing over the next 10 years. Future failures and instances similar to the Archegos collapse could make Credit Suisse's sustainable investment goals less feasible.