Lyxor’s ESG principles include the exclusion of controversial weapons and thermal coal companies. But these are applied only to physical ETFs with an explicit ESG mandate and to the substitute baskets for all synthetic ETFs. These, combined, currently account for about 55% of the firm’s assets in passive funds. With respect to active ownership, a crucial component of a passive manager’s ESG program, Lyxor has plenty of room to grow. The engagement program has clear guidelines, but it is in its infancy and has yet to be tested in terms of outcomes. The SRI team engaged with 41 companies in 2019. Lyxor is also part of the Climate Action 100+ initiative. Running an effective engagement program takes time and may call for additional resources for the SRI team.
Meanwhile, Lyxor has a detailed voting policy that already covers 70% of equity holdings. Although being expanded, the scope still falls short of competitors and retains a bias to vote only for the largest holdings. The voting record on ESG shareholder resolutions is another area that can be improved. On the plus side, Lyxor provides investors with comprehensive disclosure of ESG metrics by fund.