The highest number of US companies in at least seven years will join the STOXX® Global ESG Leaders Index, the benchmark of sustainability champions, at the expense of Japanese, Canadian and British stocks.
A total of 73 companies will enter the index on Sep. 21 as part of an annual review, including Campbell Soup Inc. and DTE Energy Co. of the US, Qontigo said on the same day. Swedish pulp and paper manufacturer BillerudKorsnas AB and German real-estate company Vonovia SE will have the biggest weight among entrants. Japan’s Nomura Holdings Inc., Nippon Telegraph & Telephone (NTT) and Mazda Motor Corp. are among 71 companies that will exit, as are AstraZeneca Plc of the UK and Canada’s Thomson Reuters Corp.
After the review, the index will comprise 415 constituents: 266 from Europe, 81 from North America and 68 from Asia/Pacific. A total of 440 companies made it into the index in the 2019 review, the highest number since index inception in 2011.
ESG trend gaining ground
Environmental, social and governance (ESG) indices have in recent years attracted interest from investors allocating more assets along responsible lines and have helped incentivize public companies to enhance their sustainability standing. The STOXX Global ESG Leaders Index is STOXX’s broadest benchmark tracking the highest-scoring companies in ESG criteria.
The index is derived from three gauges covering each ESG category individually — STOXX® Global ESG Social Leaders Index, STOXX® Global ESG Environmental Leaders Index and STOXX® Global ESG Governance Leaders Index — with each one selecting companies that are leading in that category’s criteria and range above average in the other two. The indices are compiled based on indicators from Sustainalytics, which continuously researches companies employing internal data, media reports and sector and public studies.
Sustainalytics reviews a set of indicators for each ESG category and assigns a score ranging from 0 to 100 for each indicator. These scores are aggregated into a total company rating per ESG criterion using a weighted sum, where both indicators and weight are adjusted to reflect industry idiosyncrasies.
The ratings form the basis to calculate an overall ranking for each ESG category and finally for entry into the specialized ESG indices and the overarching STOXX Global ESG Leaders Index. The latter comprises all components eligible for at least one of the specialized indices and is weighted by the sustainability scores.
Before the selection process begins, companies deemed non-compliant with Sustainalytics’ Global Standards Screening (GSS) assessment,1 and those involved with controversial weapons, are excluded.2
For more on the methodology, please click here.
A total of 123 companies have been members of the index through the past seven years or more, pillars in a corporate world that’s raising the standards in the way it operates.
The list includes industry bellwethers such as Vodafone Group Plc, Toronto-Dominion Bank, Intel Corp. and BMW AG.
This week, a net 11 European companies were added into the constituency count. That compares with a net two for North America (six net additions from the US and four net deletions from Canada). A net 12 Asian companies were removed. The composition of the three global specialized ESG indices was also reviewed.
Where the leaders are based
Table 1 lists the number of STOXX Global ESG Leaders Index members per country, following the latest review.
|Country||No. of members after review||No. of members as of Sep. 18|
While the US now accounts for a 15.2% weight of the Global ESG Leaders, it makes up 63.2% in the benchmark STOXX® Global 1800 Index.
Table 2 shows the top 10 index constituents by weight.
1 GSS identifies companies that violate or are at risk of violating commonly accepted international norms and standards, enshrined in the United Nations Global Compact (UNGC) Principles, the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights (UNGPs), and their underlying conventions.
2 In case a constituent increases its ESG Controversy Rating to Category 5 and becomes non-compliant based on the Sustainalytics Global Standards Screening assessment, the respective constituent will be deleted from the index.