Solactive has launched the Solactive Global Ethical Low Volatility AR EUR Index, which tracks the performance of companies that display strong environmental, social and governance (ESG) standards and low volatility characteristics.
Investors can use the Solactive Global Ethical Low Volatility AR EUR Index to construct investment products around ESG qualitative screens and low-volatility criteria.
Currency hedged versions of the index will be created for specific markets. For example, there is already a SEK-hedged version specifically for the Swedish market.
Sustainalytics, a provider of ESG research and ratings, provided the ESG ratings and exclusionary ethical screening criteria that underpin the Index.
Commerzbank has licensed the index to launch a wide range of products, from capital protected to more complex structures designed for their global retail and institutional client base.
Responsible investing is gaining momentum globally as evidenced by consumers placing more importance on sustainability issues, the significant number of investors committing to the United Nations-backed Principles for Responsible Investment, and the evolving global regulatory landscape.
These drivers have led to an increase in the number of ESG-related indices now available to market participants. In addition, some studies have shown that social and environmental responsibility among corporations can be positively associated with long-term performance through enhanced company reputation and brand recognition, increased customer loyalty and improved shareholder trust.
Solactive considered a global universe of stocks in the creation of the Solactive Global Ethical Low Volatility AR EUR Index. The index excludes companies with any involvement in unethical activities and fossil fuel-related operations and takes advantage of Sustainalytics’ research to exclude companies who have been involved in any controversies surrounding ESG principles.
Henning Kahre (pictured), head of research at Solactive, says: “Using ESG screens on a broad equity universe reduces exposure to companies that carry relatively high ESG-related risk. That risk is becoming increasingly relevant as companies face new regulation in that space. In addition, companies also need to adapt as several institutional investors are prohibited from investing in certain subsectors altogether due to their investment guidelines. With the Solactive Global Ethical Low Volatility AR EUR Index, we offer an appealing solution for investors seeking global ESG-compliant exposure combined with a low volatility approach.”
Jaime Uribe, head of financial institutions marketing at Commerzbank AG London, adds: “At Commerzbank, we always look to partner with experts in the field when producing innovative investment solutions which meet the demand of our clients: Solactive for their indexing capabilities and Sustainalytics for their renowned qualitative and quantitative approach seemed like the obvious choice. Licensing this index, we are responding to our client’s demands for a robust way to provide exposure to companies who adhere to the highest possible ethical standards, whilst remaining diversified geographically and reducing risk.”
Simon MacMahon, head of research at Sustainalytics, says: “Solactive continues to take significant strides to expand the range of ESG products available to investors. We are delighted Solactive chose our research and ratings to power this Index, and applaud Commerzbank for providing their clients with an innovative ethical index.”
The Solactive Global Ethical Low Volatility AR EUR Index is a denominated in EUR and calculated as a Net Total Return index. The index components are weighted according to inverse historical volatility and the composition is rebalanced quarterly. In order to avoid concentration, the selection screening limits sectoral representation to 12 companies per sector and sectoral weight is capped at 25 per cent of total weight. The index is based on 100 at the close of trading on 29 July 2011.