Zurich-based index provider Stoxx has launched a new global equity index – the iSTOXX Global Responsible Waste Management Select 30 Index – which targets companies that are best dealing with their waste footprint.
The index selects 30 stocks with low volatility and high dividend characteristics from a pool of companies that are best managing their waste footprint.
The index applies standard environmental, social, and governance (ESG) principles before selecting 30 stocks with low volatility and high dividend characteristics from a pool of companies that have demonstrated efficient refuse handling.
Suitable to underlie investment products such as ETFs, the index aims to provide a passive solution to the problem of increasing levels of waste caused by a growing, wealthier, and more urbanized global population.
The World Bank estimates municipal solid waste levels will jump 70% globally in the next 30 years, leading to severe environmental consequences such as reduced quality of air, water, and land, as well as societal issues such as increased health risks.
Index methodology
The index selects its constituents from the STOXX Global 1800 Index, a broad reference for firms listed in developed and emerging markets worldwide.
It first applies a general ESG screen by excluding companies in contravention of United Nations Global Compact principles, as well as those with operations in controversial sectors such as weapons, gambling, adult entertainment, conventional and unconventional oil & gas, thermal coal, nuclear power, and tobacco. Firms operating in the aerospace & defense sector are also removed.
The methodology then seeks to home in on responsible-waste leaders. Using insights from ESG analytics firm Sustainalytics, the index excludes firms that do not meet performance thresholds in seven key areas: oil spill disclosure and performance; management of mineral waste; management of hazardous waste; use of recycled material; offering of sustainable products and services; eco-design (does the company consider environmental aspects at the research or design stage of its products?); and product stewardship programs (does the company have end-of-life product management programs?).
Eligible companies are then assigned to one of 11 industry groups and sorted in descending order by dividend yield. A variable number of stocks are chosen, ensuring that more than 30 constituents are selected and each industry group is represented by at least one company.
The index then selects the 30 stocks with the lowest price volatility and weights them by the inverse of their volatility. Index reconstitution and rebalancing occur quarterly.
The methodology is broadly similar to the processes behind one of Stoxx’s most-recent index launches – the iSTOXX Global Cities of Tomorrow Select 30 Index. Unveiled in July, the index aims to capture the economic upside of companies exposed to the transformation and growth of ‘smart cities’ in the digital era.