Germany-based index provider Solactive has launched the Solactive Sustainable Development Goals World Index – a reference for the performance of global companies identified as making a significant contribution to the advancement of the United Nations’ Sustainable Development Goals (SDGs).
The Solactive Sustainable Development Goals World Index tracks the performance of 50 global companies which have a clear, positive net impact on sustainable development.
Designed to fit the needs of both retail and institutional investors around the world, the index may serve as the underlying for future investment products such as exchange-traded funds.
Adopted by UN member countries in September 2015, the SDGs are a set of 17 goals established to guide international cooperation on issues such as water sanitation, poverty, climate change and gender equality. The goals, which are further broken down into 169 measurable targets, seek to promote active participation from governments, corporations and investors.
The index consists of 50 equally-weighted companies which have a clear, positive net impact on sustainable development. Eligibility for inclusion is determined using a rules-based process managed by Vigeo, a European firm specialising in corporate social responsibility ratings.
The methodology initially filters out firms involved in disreputable industries such as those associated with tobacco or firearms, those which have been the subject of controversies such as human rights violations, and those whose carbon footprints are deemed to be excessively high. It then maps the SDGs against the companies’ products, services and behaviours, rating companies with regard to their business practices as well as their impact on people and the planet. Naturally, companies engaged in creating sustainable products such as renewable energy or essential medicines score highly in the evaluation. The environmental, social and governance (ESG) screenings are furthermore combined with a low volatility filter.
Each of the 50 final holdings receives an equal weight in the index which is reconstituted annually. A sector cap of 12 holdings is applied, and the index ensures diversification across Europe, Asia and North America with a cap of 25 holdings per region.
The index currently has 24 holdings from Europe, 18 from America and 8 from Asia. The largest sectors are healthcare and industrials (12 holdings each), consumer non-durables (8), finance (6) and utilities (4).
As of 5 October 2016 the index is up 6.6% year-to-date. Using back-tested data it has returned 362.3%, or approximately 10% per annum since September 2000.
Source: Solactive.
Henning Kahre, Head of Research, Solactive AG, commented: “We at Solactive see increasing demand for indices offering environmental, social and governance (ESG) compliant access to markets as a result of long-term initiatives such as the UN’s SDGs. For the Solactive Sustainable Development Goals Index we combine our expertise in ESG focused index design with strong and experienced partners in the space, on the ESG research as well as on the product side. Furthermore, this new index series adds a smart beta layer on top of the initial universe of stocks, combining two of the most relevant themes in the indexing industry these days.”
Michael Notat, Head of Global Markets at Vigeo Eiris, added: “This new SDGs index is a great means to invest in long term value creation through a precise selection of companies based on their business behaviour, the nature of their activities with regard to SDGs and their carbon strategy. It brings together a set of companies that are committing not only to sustainable growth in their products and services but as well in their way of doing business.”
Available in EUR and USD, the index is also offered with a Risk Control feature, using a target volatility level of 8% for the EUR version and 10% for the USD index.