FTSE Russell, a global index provider, has reunited with the Johannesburg Stock Exchange (JSE) to update the existing FTSE/JSE Africa Index Series. The collaboration involves the launches of the FTSE/JSE Responsible Investment Benchmark and a Top 30 Index, replacing JSE’s existing socially responsible investment index. These indices may be used as a reference for future tracking assets such as exchange-traded funds.
The new indices provide updated measures for investors to better manage the ESG risk of their portfolios.
The new indices are based on FTSE Russell’s next generation environmental, social, and corporate governance (ESG) model. There has been a noted demand for similar benchmarks in the region, indicative of the growing popularity of socially responsible investing as well as investment manager’s desire to better control ESG risk within their portfolios. Historically, superior risk-adjusted returns have been provided by highly ranked ESG firms when compared to broad equity market indices.
David Harris, Head of ESG, FTSE Russell, commented: “Investors in companies listed on JSE now have a suite of new indices to integrate ESG into their investment and stewardship decisions. South African listed companies are ranked highly for ESG performance in Emerging Markets. JSE has championed and encouraged sustainability disclosure for many years, making it the ideal partner for FTSE Russell to develop innovative ESG products for this market.”
The engine behind the new indices is the existing FTSE ESG Ratings methodology which provides objective ESG exposure and performance data. The model is based upon three pillars (environmental, social, and corporate governance) which are further divided into fourteen themes (such as climate change, health & safety, and anti-corruption). Each theme employs between 10-35 indicators for a total of 350 individual points of analysis to determine the firm’s ultimate ESG score. Both the themes and the pillars are uniquely weighted depending on the industry and specific activities relative to each firm.
The FTSE/JSE Responsible Investment Benchmark weights constituents according to their assigned ESG ratings, and the Top 30 Index contains only those companies with the highest scores.
The participation of national stock exchanges in promoting ESG values has become increasingly popular after the launch of the United Nation’s Sustainable Stock Exchange Initiative. The initiative is aimed at exploring how exchanges can work together with investors, regulators, and companies to enhance corporate transparency, and ultimately performance. The move has been highly praised for its mission to catalyse change to best practice ESG reporting among corporate issuers.
Corli Le Roux, Head of Sustainability at the Johannesburg Stock Exchange, commented: “This launch indicates a firm commitment by both the JSE and FTSE Russell to advance responsible investment and builds on the JSE’s decade-long experience in helping companies integrate the principles of the triple bottom line and good corporate governance into their business practices.”