Scientific Beta, a commercial affiliate of EDHEC-Risk Institute, is now offering environmental, social and governance (ESG) and low carbon options on all its flagship multi-beta multi-strategy indices.
ESG and low carbon options are now available on Scientific Beta’s multi-beta multi-strategy indices.
The options enable investors to capture the performance of Scientific Beta’s indices while also reducing exposure to companies with high ESG and climate change risks.
The ESG option excludes companies that fall severely short of global standards of responsible business conduct, deprive shareholders of voting rights or are involved in activities that conflict with global ESG norms or their objectives.
It also includes additional negative filters targeting companies facing critical controversies in the areas covered by the UN Global Compact, or involved in inhumane weapons or deriving significant revenues from tobacco distribution.
The low carbon option incorporates the above ESG screens while also removing companies with strong coal investments and by reducing exposure to companies with high carbon emissions per unit of revenue. The effect of these screens is a material reduction in the carbon footprint and exposure to companies most likely to be negatively affected by carbon transition risks.
Noël Amenc, CEO of Scientific Beta, commented, “Scientific Beta’s ESG incorporation philosophy centres on exclusions that are determined solely on ESG merits and demerits and applied as the first step of index construction. This approach respects the principles of ethical and socially responsible investors and, as a result, exclusions send clear signals to issuers and are straightforward to explain to stakeholders.”
Frederic Ducoulombier, ESG Director at Scientific Beta, added, “The low carbon option is now a very important fiduciary choice for investors. Scientific Beta’s low carbon indices have financial risk/reward characteristics that are closely aligned with our standard smart factor indices, capable of delivering outperformance through exposure to scientifically validated risk premia and the reduction of specific, unrewarded risks, but with the additional benefit of a 50% reduction in weighted average carbon intensity over the last ten years.”
Multi-beta multi-strategy
Scientific Beta’s multi-beta multi-strategy indices are available as both four-factor and six-factor combinations. The former comprises size (mid-cap), value, high momentum, and low volatility, while the latter additionally includes the quality factors of low investment and high profitability.
The index provider’s approach aims to maximize the diversification of strategy-specific risks by using an equal-weighted mix of the most popular diversification strategies (maximum deconcentration, maximum decorrelation, diversified risk-weighted, efficient minimum volatility, and efficient maximum Sharpe ratio).
The indices are available for all developed world geographical regions including USA, UK, eurozone, developed Europe ex-UK, Japan, developed Asia Pacific ex-Japan, developed ex-USA, developed ex-UK, and developed global.
Index-linked AUM
Assets tracking Scientific Beta indices reached $43 billion, as of the end of 2018, representing a one-year growth rate of 72%.
As a growing number of ETF issuers roll out ESG funds, the new index options provide additional choices for issuers looking to combine ESG and factor investing themes.
Scientific Beta enjoys a growing presence in the ETF industry with its indices underlying funds from issuers such as Morgan Stanley, Amundi, and Global X Funds.