
The London Stock Exchange (LSE) index-manufacturing subsidiary, FTSE Russell, has hooked up with research house Sustainalytics to produce a new suite of environmental, social and governance (ESG) benchmarks.
In a release last week, FTSE Russell said the two entities would “work together to develop new FTSE Russell ESG indexes using the new Sustainalytics ESG Risk Ratings” for release early next year.
While the LSE-owned indexer already offers a range of sustainable investment benchmarks under the FTSE4Good label (launched in 2001), the release says the new Sustainalytics-based ESG indices would “provide the market with additional choice”.
Mark Makepeace, FTSE Russell CEO, said the deal underscored the index provider’s long-established support for “ESG integration into passive strategies”.
“The partnership with Sustainalytics enables us to provide a greater selection of options and choice to meet these ever growing client demands,” Makepeace said.
Michael Jantzi, Sustainalytics CEO, said the new ESG benchmarks would initially target mainstream Russell US equity indices (the 1000, 2000 and 3000), which had “a leading position amongst institutional and retail investors and the partnership will provide valuable tools for ESG integration and product creation”.
The global ESG research house, now 40 per cent-owned by Morningstar, has captured a large part of the market in NZ, providing services to boutique and institutional fund managers alike. Following the KiwiSaver cluster munitions exposure outburst, the NZ funds management market has broadened its focus on ESG with bespoke strategies as well as stock-standard exclusions (tobacco, fossil fuels, pornography, for example) now common.
FTSE Russell provides benchmark data to a number of Vanguard funds including the recently-launched Ethically Conscious global equities product released in NZ and Australia this September.
With about US$16 trillion of investment tracking its benchmarks FTSE Russell, along with S&P Dow Jones and MSCI, is one of the top-three index providers that have surfed the post-GFC passive investment wave.
According to a new Index Industry Association (IIA) survey, the number of investable benchmarks increased by 438,000 over the 12 months to June 30 this year to total 3.7 million compared to a global universe of approximately 50,000 stocks, Bloomberg reported in November.
The Bloomberg report says the big three index houses accrued “more than [US]$2 billion in revenue last year despite issuers taking fees on many indexed funds down toward zero”. For example, US fund giant Fidelity released a range of ‘zero fee’ index funds earlier this August.
“Licensing more benchmarks, which typically is an asset-based payment, helps offset the lower charges,” the Bloomberg report says.
In a release Rick Redding, IIA chief, said the industry body research shows index providers were devoting more resources to building fixed income benchmarks.
“Equity indexes remained rather consistent across most categories,” Redding said. “However, the growth and innovation in ESG, factor and smart-beta indexes over the past year has been impressive.”