Institutional Shareholder Services’s ESG arm has launched a new range of passive indices based around biodiversity.
These new products are likely to appeal to many institutional investors, including pension funds that increasingly use passive approaches but have ESG goals to meet. While there are a number of indices now focused on climate change and carbon reduction, there has increasingly been a focus on other ESG issues, such as biodiversity.
This ISS Stoxx biodiversity index suite has been launched in conjunction with Qontigo – an analytics firm – and will mark the UN’s international day for biological diversity.
All indices in the suite use a granular index construction, built on ISS ESG’s datasets and a three-part framework to select index constituents. This is based on an avoid, minimize and enable approach. These new indices automatically exclude companies involved in activities that cause harm to biodiversity, minimise exposure to companies with negative impacts on biodiversity, and capture companies enabling positive impact on biodiversity, by enhancing alignment to firms that meet UN Sustainable Development Goals (SDGs) on biodiversity.
At the same time the index methodology targets a reduction in carbon intensity of at least 30 per cent across the included constituents.
The suite also include a a biodiversity leaders family which consists solely of companies deriving at least 20 per cent of their revenues from activities that are deemed to make a positive net contribution to the SDGs. These activities include preservation of marine ecosystems and sustainable agriculture and forestry.
Stoxx chief product officer for indices and benchmarks Axel Lomholt says: “This launch comes as global investors are urged by some to account for and price nature into their sustainable investment strategies. Biodiversity is one of the paramount themes of our age and calls for investors to understand and address its associated risks in their investment portfolios.”
ISS head of investment and stewardship Lorraine Kelly says: “Investor focus on managing biodiversity impact has the potential to become as significant and enduring as the current focus on climate change.”