Sustainable investing has grown into a multitrillion-dollar business, and this week two more companies have announced new environmental, social and governance-based products, either indexes or tools to measure performance. ETF Global expanded its data and metrics to specifically target ESG factors that affect returns, while FTSE Russell will be developing indexes based on the Russell 1000, 2000, and 3000 indexes that incorporate ESG principles.
The Russell ESG indexes will be developed through a collaboration between FTSE Russell and Sustainalytics, it was announced Wednesday. The two companies, which have periodically worked together to develop custom indexes, hope to release the new ESG indexes by early 2019, Tony Campos, head of ESG Americas for FTSE Russell, told ThinkAdvisor. He added that the early 2019 launch date allows the firm to get input from their clients in designing the products.
FTSE Russell, a global multi-asset index, data and analytics provider, and Sustainalytics, which does global ESG and corporate governance research, ratings and analysis, will begin by developing the FTSE Russell ESG indexes by using Sustainalytics’ ESG Risk Ratings. In May, Sustainalytics helped develop Morningstar’s Carbon Risk Score tool, among other ESG ratings tools.
“FTSE Russell has been a leader in sustainable investment for nearly two decades and has been supporting the growing demand for ESG integration into passive strategies,” said Mark Makepeace, CEO of FTSE Russell, in a statement. “The partnership with Sustainalytics enables us to provide a greater selection of options and choice to meet these ever-growing client demands.”
FTSE Russell has already entered the ESG field with other products, such as the FTSE4Good Index Series, which is a suite of indexes designed to measure the performance of companies that meet globally recognized ESG standards. Indexes include the FTSE4Good Index Series, the FTSE4Good IBEX Index, the FTSE4Good Environmental Leaders Europe 40 Index and the FTSE4Good Bursa Malaysia Index.
Campos said that Russell 1000, 2000 and 3000 indexes already have $9 trillion in benchmarked assets, “so it’s a great opportunity to bring [ESG] to users.”
Although they are exploring methodologies now, he said that two types of possibilities for design include subsets of ESG characteristics that exclude/include Russell Index companies, as well as a more nuanced index that weights companies according to an ESG score.
Meantime, ETF Global, an independent provider of data and research, will be focused on rating companies according to their ESG value and providing forecasts. Much has been written of how more ESG-friendly a company is, the better it performs. ETF Global and its partner Confluence Analytics are tapping that information to forecast a company’s future performance.
“[ESG] has become an important part of how investors make decisions and Confluence’s predictive metrics only underscore that importance, “ Matthew Litchfield, senior research analyst at ETF Global, said in a statement.
Related on ThinkAdvisor:
- Why Are Advisors Reluctant to Hop on the ESG Train?
- Trust Matters When Investing in Companies
- How Tech is a Win-Win for SRI