Morningstar has launched the Morningstar Eurozone Societal Development Select 80 Index, drawing on the ESG data and risk ratings of Morningstar Sustainalytics, and exclusively licensed by HSBC as the basis for new index-based structured products.
Julien Thibaud, Global Head of Derivatives & Exchange Business Development for Morningstar Indexes, says: “We are excited to collaborate once again with HSBC to offer an ESG index-based approach for structured product investors. This new index draws on the leading global index methodologies of Morningstar Indexes and is based on the leading ESG research and data of Morningstar Sustainalytics. It is designed to address growing investor interest in impact and societal development-related investment strategies and market exposures.”
Vikram Puppala, Global Head of ESG Products for Morningstar Sustainalytics says: “We are proud to support an index for investors focused on the societal impacts of their portfolios. Companies operate in an interconnected socioeconomic context that affects human development through multiple lenses. These kind of collaborative index initiatives are a way forward for investors to meaningfully address basic social needs in global regions where it’s most urgent.”
Romain Benvenuto, Global Head of QIS Structuring, HSBC, says: ”We’re pleased to exclusively license the Morningstar Eurozone Societal Development Select 80 Index. HSBC will be able to offer products tracking the index, addressing our clients’ willingness to allocate capital toward companies that display commitments toward social goals.”
The Morningstar Eurozone Societal Development Select 80 Index is designed to provide investors with exposure to large – and mid-cap Eurozone- based companies that display a stronger commitment to policies that are aligned to the United Nations’ Sustainable Development Goals and support economic development in emerging market countries with the lowest levels of economic development according to the World Bank and the United Nations.
This new index begins with the Morningstar Eurozone Large-Mid Cap Index, with approximately 400 companies, and then selects and weights eligible constituents based on the Societal Development Score system of Sustainalytics in addition to a scaling factor based on company revenue.
In order to qualify for a societal development score, companies must have at least five of 32 key performance indicators (KPIs) as identified by Sustainalytics. Examples of KPIs include gender pay disclosure, fair trade products, human rights, working hours and bribery and corruption policies.
Once a company qualifies for index eligibility, its Societal Development Score is calculated based on its rankings across various key performance indicators for social and economic development policies. A scaling factor is then applied to this score based on what percentage of the company’s revenue is derived from markets defined as “low” or “lower middle income” by the World Bank or as a “least developed country” by the U.N.
The 80 top companies selected for the index based on their scaled societal development score, such as Veolia and LMVH, demonstrate a top-down commitment to social and economic policies that help emerging and underdeveloped countries as well as a commitment to doing business in these markets.