Thomson Reuters is launching a family of environmental, social and corporate governance (ESG) indices, the first new indexes in our field for years.
Back in the mid-2000s they were trendy, with about a dozen launching in the space of a few years.
Thomson Reuters Corporate Responsibility Indices are being developed with S-Network Global Indexes, a specialist index design firm, "as an objective and transparent, rules-based benchmarking solution for measuring ESG performance," they say.
To get into the index, companies will be rated on environmental, social and corporate governance practices. Varying indicators will be used based on industry, country and the regional focus of a company’s operations. Quantitative measures will be emphasized over qualitative ones to ensure the indices are as objective and transparent as possible.
After companies are benchmarked, the top-rated ones will be included in the index.
Unlike the majority of ESG indices, they say, these will mirror the performance of major global benchmarks with companies that have substantially higher ESG ratings than those in the S&P 500 or MSCI EAFE.
"The first generation of ESG indices were designed to target the very best performers under the presumption that they would provide better returns than others," says Joseph LaCorte, president of S-Network. "That approach, however, resulted in companies concentrated in certain sectors and regions, resulting in excessive risk and unwanted volatility. These new indices are designed to represent the performance of American and global markets whilst reassuring investors that all included stocks have better than average ESG ratings."
Over $3 trillion in financial assets are managed by signatories of the United Nation’s Principles for Responsible Investment. Adherence to ESG principles is widely regarded as a key indicator of the sustainability of companies’ business practices.
The Indexes are:
Thomson Reuters US Large Cap Environmental Index
Thomson Reuters US Large Cap Social Index
Thomson Reuters US Large Cap Governance Index
Thomson Reuters US Large Cap ESG Index
Thomson Reuters Global Large Cap Environmental Index
Thomson Reuters Global Large Cap Governance Index
Thomson Reuters Global Large Cap ESG Index
Institutional investors have become increasingly active over the years, putting their money in these kinds of investments and pressuring companies to move faster on climate change and stop political spending, for example.
11.2% of all investments under professional management in the US meet "sustainable" investment standards, a rise of 22% over the past two years – $3.7 trillion.
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