Vigeo, a European firm specialising in corporate social responsibility ratings, has teamed up with exchange operator and index provider Euronext to launch the Euronext‐Vigeo EM 70 Index.
Vigeo and Euronext have teamed up to create an index which tracks the top 70 ESG-rated companies in the emerging markets.
The index is composed of the 70 highest-ranked companies based on environmental, social and governance (ESG) factors, as determined by Vigeo, in the Russell Emerging Markets Index.
The index is suitable to form the basis of index-linked investment products such as exchange-traded funds (ETFs).
Fouad Benseddik, Director of Methodology at Vigeo, commented: “The need is real for developing countries, just as for the rest of the world, to identify the companies that are most actively engaged in their social responsibility. This new index is a positive sign in favoir of the globalization of principles and indicators defining governance and responsible management. Vigeo is proud to contribute to this progressive movement.”
The index stands out for its alternative weighting scheme which allocates to constituents based on their ESG score. This draw parallels with smart beta methodologies which seek excess returns by avoiding constituent weightings based on market capitalisation as this can often lead to outsized positions in highly valued companies. By tilting towards companies exhibiting ESG strength, the index could provide long-term sustainable returns by avoiding companies subject to social and environmental risks and favouring those which follow good management techniques. In order to prevent over concentration in any one company each position is capped at a 10% weight.
Vigeo assesses and rates the ESG performance of companies based on 38 criteria. These include ratings for companies’ ability to master risks related to social responsibility, particularly in the field of human rights, decent employment practices, environmental protection, corporate governance, business ethics and contributions to social economic development in areas where they operate.
In order to keep ratings up to date and the index representative of the best companies, components are reviewed and updated twice a year.
The complete Euronext‐Vigeo index range is composed of the following:
Euronext‐Vigeo EM 70
Euronext‐Vigeo France 20
Euronext‐Vigeo UK 20
Euronext‐Vigeo Benelux 20
Euronext‐Vigeo US 50
Euronext‐Vigeo Eurozone 120
Euronext‐Vigeo Europe 120
Euronext‐Vigeo World 120