Environmental, social impact and governance (ESG) is continuing to permeate through the capital markets. Scientific Beta has announced that it is now providing an ESG option for all of its indices.
The ESG option enables investors to benefit from the performance of Scientific Beta’s High Factor Intensity (HFI) Multi-Beta Multi-Strategy (MBMS) indices while upholding ESG norms and materially reducing exposure to companies with high exposure to ESG risks.
The ESG option excludes companies that fall severely short of global standards of responsible business conduct, deprive shareholders of voting rights or are involved in activities that conflict with global ESG norms or their objectives (anti-personnel landmines and cluster munitions, tobacco manufacturing, coal). It also includes additional negative filters targeting companies facing critical controversies in the areas covered by the UN Global Compact, or involved in inhumane weapons or deriving significant revenues from tobacco distribution.
Scientific Beta’s ESG incorporation approach is based on three principles:
- Differentiating between non-financial objectives or constraints, which are primarily addressed by negative or positive filtering, and the search for financial performance, which relies on an academic consensus based on factors and diversification;
- Treating the ESG policy as a fiduciary constraint and delivering on an ambitious nonfinancial mandate while maintaining high-factor intensity and good diversification of portfolios
- Offering an off-the-shelf ESG option for HFI MBMS indices while retaining the capacity for customization.
Commenting on the launch of Scientific Beta’s ESG option, Noël Amen, CEO of Scientific Beta, said, “Scientific Beta’s ESG incorporation philosophy centers on exclusions that are determined solely on ESG merits and demerits and applied as the first step of index construction. This approach respects the principles of ethical and socially responsible investors and, as a result, exclusions send clear signals to issuers and are straightforward to explain to stakeholders.”
ESG Growing in Real Estate Sector
The growth of ESG funds is not relegated to simply growing in size, but the actual definition is expanding as well. While climate and sustainability still dominate topically, factors like health and wellbeing benchmarks have been formally added to the GRESB Real Estate Assessment (the ESG benchmark used by the real estate industry worldwide).
Real estate is becoming a key purveyor of promoting health awareness as part of ESG efforts.
According to a Green Health Partnership report, the “private real estate sector is an important partner in efforts to create health-promoting communities. Real estate investors and companies are increasingly interested in understanding their ESG performance driven by the belief that demonstrating corporate social responsibility for issues like environmental sustainability positively impacts the bottom line.”
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