The 13 sustainability indexes that include ESG factors make them second most common among those currently available through FTSE/Russell, MSCI and S&PDJI. Sustainability indexes that concentrate on individual S, G, or ES concerns comprise the remaining 10 sustainability indexes from these three index providers. The chart below summarizes the primary objectives and associated financial expectations of sustainability indexes, outlines the construction approaches being used today, and details the general shareholder voting rights and engagement implications of different construction techniques. Primary Objectives and Construction Implications of ESG Indexes Primary Objective Integrate Values Impact Incorporate ESG criteria to Seek to generate measurable enhance long-term return and/or with investor social or environmental benefits Construction manage ESG financial risk ethical/social/political and meet or exceed financial Approach compared to parent index values returns of parent index Typical Sustainability Index License Fees Pay a few basis points more than for parent index (more for more complex construction) ESG Characteristics Exclude Give up shareholder voting rights and engagement at companies with ESG concerns Portfolio diversification reduced Select Retain shareholder rights and engagement on leaders within Portfolio diversification reduced to specific theme Reweight Retain shareholder voting rights and engagement Portfolio diversification reweighted by ESG factor/s Matching Parent Index Characteristics Optimize Keep tracking low Maintain Match parent index industry, country, and/or size weights Resulting Gross of index license fees, seek Potential for Gross of index license fees, Financial higher return, and/or lower risk return and/or higher meet parent index return and Expectations than parent index; if optimized, risk than parent index risk meet parent index return and risk, gross of license fees Using this framework, we identify the primary objective and construction approach of sustainability indexes as shown in the table on the following page (see Appendix II for summary of each index). Primary Objectives of ESG Indexes Primary Objective Keep Vote to Improve Index ESG Category and Name Construction Approach Integrate Values Impact ESG Total Number of ESG Index Series 14 17 11 FTSE/Russell ESG-ESG Reweight, Maintain Yes ESG-4Good Exclude, Select - E-ex-Fossil Fuel Exclude - E-ex-Coal Exclude - E-Environmental Opportunities Select - E-Divest Invest Exclude, Select, Reweight - E-Green Revenues Reweight, Maintain Yes E-Climate Reweight, Maintain Many
The 13 sustainability indexes that include ESG factors make them second most common among those currently available through FTSE/Russell, MSCI and S&PDJI. Sustainability indexes that concentrate on individual S, G, or ES concerns comprise the remaining 10 sustainability indexes from these three index providers. The chart below summarizes the primary objectives and associated financial expectations of sustainability indexes, outlines the construction approaches being used today, and details the general shareholder voting rights and engagement implications of different construction techniques. Primary Objectives and Construction Implications of ESG Indexes Construction Approach Primary Objective Integrate Values Impact Incorporate ESG criteria to enhance long-term return and/or manage ESG financial risk compared to parent index with investor ethical/social/political values Seek to generate measurable social or environmental benefits and meet or exceed financial returns of parent index Typical Sustainability Index License Fees Pay a few basis points more than for parent index (more for more complex construction) ESG Characteristics Exclude Give up shareholder voting rights and engagement at companies with ESG concerns Portfolio diversification reduced Select Retain shareholder rights and engagement on leaders within Portfolio diversification reduced to specific theme Reweight Retain shareholder voting rights and engagement Portfolio diversification reweighted by ESG factor/s Matching Parent Index Characteristics Optimize Keep tracking low Maintain Match parent index industry, country, and/or size weights Resulting Financial Expectations Gross of index license fees, seek higher return, and/or lower risk than parent index; if optimized, meet parent index return and risk, gross of license fees Potential for return and/or higher risk than parent index Gross of index license fees, meet parent index return and risk Using this framework, we identify the primary objective and construction approach of sustainability indexes as shown in the table on the following page (see Appendix II for summary of each index). Primary Objectives of ESG Indexes Index ESG Category and Name Construction Approach Primary Objective Keep Vote to Improve ESG Integrate Values Impact Total Number of ESG Index Series 14 17 11 FTSE/Russell ESG-ESG Reweight, Maintain Yes ESG-4Good Exclude, Select - E-ex-Fossil Fuel Exclude - E-ex-Coal Exclude - E-Environmental Opportunities Select - E-Divest Invest Exclude, Select, Reweight - E-Green Revenues Reweight, Maintain Yes E-Climate Reweight, Maintain Many