FTSE Russell launches ESG-focused index

Feb 08, 2019
Index similar to traditional UK benchmark, notes provider

HSBC has signed a license agreement to launch FTSE Russell’s new ESG-focused index, in response to growing demand.

The FTSE UK 100 ESG Select Index, designed to help investors incorporate ESG objectives into their passive investments, will form part of the bank’s portfolio of ESG-focused equity products. It uses rules-based ESG ratings and data models to select companies for inclusion.

According to FTSE Russell, the ESG ratings and data models contain more than 300 indicators across 14 themes, based on publicly available data. Eligible shares are each given an ESG rating ranging from zero to five, with five being the highest rating.

Members are weighted based on their investable market capitalization and will be reviewed quarterly, in line with the FTSE UK Index Series.

FTSE Russell explains that sustainable investment benchmarks support transparency and disclosure in the capital markets, and provide a signal to companies regarding their performance on a range of sustainability and ESG issues.

Aled Jones, head of sustainable investing for Europe at FTSE Russell, says: ‘HSBC’s decision to license this index as part of its portfolio of ESG-focused equity products is testament to the need for broad benchmarks that enable the development of ESG structured products and portfolios for individual clients.’

Patrick Kondarjian, HSBC’s EMEA head of sales-equity derivatives solutions and cross-asset distribution, says the bank identified a clear need from investors in Europe for ESG benchmark indices. ‘So it is exciting to be able to offer access to this product that delivers strong ESG scores in a straightforward and intuitive way to investors,’ he adds.

Aveesh Acharya, director of equity derivatives structuring at HSBC, says: ‘The transition to sustainable investments can be challenging but the intuitive methodology of this index will give our clients the confidence to implement ESG using an index constructed along the lines of a traditional UK benchmark.’

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