Building on the success of its first index ESCGI, launched in January 2017, Ethos will be offering a new index allowing investors to favor companies that adhere to best practices in corporate governance and environmental responsibility. In collaboration with SIX, this new index focuses on the 20 largest companies listed on the Swiss stock market.
On Monday 2 December 2019, the Ethos Foundation launches a second index dedicated to good corporate governance within Swiss companies. The "Ethos Swiss Governance Index Large" adopts the same methodology as the "Ethos Swiss Corporate Governance Index" (ESCGI) created in January 2017, but with a focus on the 20 largest companies listed on the Swiss stock market, while the ESCGI is based on the "Swiss Performance Index" (SPI) (215 companies). Ethos continues to grow its partnership with SIX, who will act as the calculating agent for the index.
The launch of this new index has been requested by large Swiss institutional investors aiming to integrate corporate governance best practices in their investments. One major institutional investor has already announced plans to use the new index for the management of assets of over CHF 200 million. This amount will be added to the assets of over CHF 500 million already replicating the ESCGI, therefore increasing the total assets replicating Ethos’ indices to over CHF 700 million.
"The increasing use of our indices reflects the growing interest from investors – in particular institutional investors – to address in governance and environmental risks in their investments", says Vincent Kaufmann, CEO of Ethos.
The Ethos indices enable investors to privilege the most responsible and sustainable companies on the Swiss stock market. Those that do not meet good governance practices – whether due to their capital structure, board composition or compensation system – are therefore underweighted compared to the traditional index. The level of underweight depends on the governance risk factors identified by Ethos. Companies that have an insufficient climate risk strategy or that are subject to significant environmental and social controversies are also underweighted. The other companies – which adhere to good practices – have their weight automatically increased. Of the 20 companies included in the new index, 6 are currently underweight.
“This methodology reduces governance risks that are ignored by traditional indices but can impact the value of companies, says Vincent Kaufmann. Furthermore, such an approach does not reduce financial performance”. As an example between 27 January 2017 (when the first index was launched) and 15 November 2019, the ESCGI has risen by 36.71% (11.82% annualized) while the SPI – the traditional index that does not take ESG factors into account – has risen by 36.15%.
As with the first index, Ethos is able to rely on the expertise of SIX to calculate the new index. "We are delighted that the Ethos Foundation has entrusted us with the calculation and distribution of this index to clients, says Christian Bahr, Head Index Services at SIX. With the introduction of this new index, SIX is continuing the positive development of its index-related activities".