September 27, 2013
New Stock Indexes Champion Sustainability
by Robert Kropp
The United Nations Global Compact creates an index of 100 companies adhering to its principles, and
STOXX launches two indexes using key performance indicators developed by Axel Hesse.
Recently launched stock indexes suggest that sustainable investment strategies can lead to
Referring to the Global Compact 100—an
index of 100 companies that have committed to the ten principles of
the UN Global
Compact—Executive Director Georg Kell said, “While the performance of the GC 100 should not be
seen as clear evidence of a causal relationship between a commitment to corporate sustainability
practices and stock performance, there appears to be an exciting correlation.”
the FTSE All World benchmark, the GC 100 outperformed over periods of one and two years. The total
investment return of the GC 100 over the past year was 26.4% compared to 22.1% for the FTSE All
“The results may also reflect the fact that sustainability performance is a factor
that is receiving increasing interest from investors,” Kell continued.
Research for the
construction of the index was provided by Sustainalytics, a sustainable investment research firm.
“Portfolios containing companies that exhibit enhanced extra-financial risk management
characteristics have the potential to perform better over time,” Sustainalytics CEO Michael Jantzi
said. “We developed the GC 100 to test that hypothesis and these initial results are positive.”
In its research, Sustainalytics uses the key performance indicators (KPIs) developed by
Axel Hesse of Sustainable Development Management
(SD-M), which also form the basis of the construction of two sustainability-weighted indexes
launched this week by STOXX. In the EURO
iSTOXX 50 SD-KPI and iSTOXX Europe 50 SD-KPI indexes, index components are over- and underweighted
according to their KPIs.
Referring to the conclusions of the influential Freshfields
reports, Hesse said, “Institutional investors have a fiduciary duty to consider material
environmental, social and governance (ESG) indicators that are relevant for the financial
performance. The integration of sustainable development key performance indicators (SD-KPIs) should
also achieve two more goals: a low tracking error to the EURO STOXX 50 or STOXX Europe 50, with the
opportunity to use the conventional options and futures for hedging, and a more sustainable
The new indices are designed to act both as an underlying to passive
institutional mandates, exchange-traded funds and other investable products, and as a proper
benchmark for actively managed funds, STOXX stated.
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