Sage Advisory Services has launched the Sage ESG Intermediate Credit Index, offering a performance reference for the intermediate credit market of US firms with strong environmental, social & governance (ESG) characteristics. The Austin-based, fixed income investment-management firm harnesses its own proprietary ESG factor analysis framework when constructing the index.

The index selects bonds from the Barclays US Credit Bond Index that have a high ESG rating.

The firm uses a three-pronged approach to select between 110-120 investment grade securities with a minimum tranche size of $500 million from the Barclays US Credit Bond Index and an issuance date within the last three years.

To be selected, securities must meet a proprietary ESG score, fall within the top third of the group to which Sage categorises them, and meet a controversy rating that flags to investors potential environmental and social risks associated with the security. The index also seeks to broadly align duration and risk characteristics to the parent index. It is rebalanced quarterly.

Robert G. Smith, president and CIO of Sage Advisory, commented: “ESG is rapidly gaining traction within both institutional and individual investors, and we’re seeing the positive impact of these conscious investments across a wide range of sector and causes. With the Sage ESG Intermediate Credit Index, we’ll achieve our goal of providing an institutional quality index that further accelerates the momentum gained to date.”

In a recent Sage study, the firm found that excess returns for ESG investing over the past 20 years have correlated positively with growth and quality. Sage found that ESG excess returns do not have a close relationship with the size factor, and their relationship with low volatility has flipped since the financial crisis.