Thomson Reuters unveils corporate responsibility indices

Source: TheAsset.com

Thomson Reuters has launched a new family of environmental, social and corporate governance (ESG) indices. The Thomson Reuters Corporate Responsibility Indices were developed jointly with S-Network Global Indexes, a New York based specialist index design firm, as an objective and transparent, rules-based benchmarking solution for measuring ESG performance. The announcement of the launch of the indices was made April 24 at the CSR Investing Summit in New York.

Thomson Reuters Corporate Responsibility Indices support Thomson Reuters vision to connect and enable the global financial community. They rate companies' performance and practices in the three key pillars of CSR investing: environmental, social and corporate governance practices. Unlike the majority of ESG indices, the indices mirror the performance of major global benchmarks via companies that have substantially higher ESG ratings than the weighted average for such indices as the S&P 500 or MSCI EAFE.

"Responsible investing is rapidly becoming central to the investment processes of large-scale owners of capital around the world and these indices serve as rational benchmarks for measuring ESG performance," said Jason du Preez, global head, indices and symbology at Thomson Reuters.

The new indices are powered by "dynamic" ratings based on the Thomson Reuters ASSET4 ESG database. The Thomson Reuters Corporate Responsibility Indices employ a large array of indicators, each having different levels of importance depending on the industry, country and regional focus of a company's operations. The ratings include a greater emphasis on quantitative outcomes than on qualitative corporate statements to ensure the indices are as objective and transparent as possible.

The top ESG rated companies from each sector are included in the indices, which do not use negative screening to exclude certain industries. This process results in more accurate and diversified benchmarks.

"The first generation of ESG indices were designed to target the very best performers under the presumption that they would provide better returns than others," said Joseph LaCorte, president of S-Network. "That approach, however, resulted in companies concentrated in certain sectors and regions, resulting in excessive risk and unwanted volatility. These new indices are designed to represent the performance of American and global markets whilst reassuring investors that all included stocks have better than average ESG ratings."

The first two sets of indices cover large capitalization stocks located in the US and the international developed ex- North America region (also known as EAFE). Composite ESG indices are available for these two regions, as well as indices for the two regions based on the individual economic, social and governance pillars. Real time index values will be available on Thomson Reuters desktops and feed products from May 30 2013. The indices and ratings will also be available via an S-Network operated website, which will allow users such as advisors, students and the media an affordable way to not only benchmark against the index but also rate ESG performance of a portfolio of stocks.

According to the United Nations Principles for Responsible Investment (UN PRI), over US$3 trillion in financial assets are managed by signatories of the UN PRI's framework. Adherence to ESG principles is widely regarded as a key indicator of the sustainability of companies' business practices.