SRI and sustainability ratings depend on the choice of the reference index one uses. Typically, SRI indices constitute a relevant proxy for the performance that is achievable through a sole focus on improving diversification within an SRI universe (Le Sourd, 2011). A large number of SR contractors, analysts and research firms are increasingly specialising in the collection of environmental, social and governance information as they perform ongoing analyses of corporate behaviours. Many of them maintain a CSR database and use it to provide their clients with a thorough ESG analysis (including proxy advice), benchmarks and engagement strategies of corporations. They publish directories of ethical and SRI funds, as they outline their investment strategies, screening criteria, and voting policies. In a sense, these data providers support investors in their selection of SRI funds.
- SRI Indices, Ratings and Information Providing Contractors
KLD / Jantzi Global Environmental Index, Jantzi Research, Ethical Investment Research Service (Vigeo EIRIS) and Innovest (among others) analyse the corporations’ socially responsible and environmentally-sound behaviours. Some of their indices (to name a few) emphasise on the impact of products (e.g. resource use, waste), the production process (e.g. logging, pesticides), or proactive corporate activity (e.g. clean energy, recycling). Similarly, social issues are also a common category for these contractors. In the main, the SRI indices benchmark different types of firms hailing from diverse industries and sectors. They adjust their weighting for specific screening criteria as they choose which firms to include (or exclude) from their indices. One of the oldest SRI indices for CSR and Sustainability ratings is the Dow Jones Sustainability Index. The companies that are featured in the Dow Jones Indices are analysed by the Sustainable Asset Management (SAM) Group (i.e. a Swiss asset management company). Another popular SRI index is FTSE Russell’s KLD’s Domini 400 Social Index (also known as the KLD400) which partners with the Financial Times on a range of issues. Similarly, the Financial Times partners with an ESG research firm (i.e. EIRES) to construct its FTSE4 Good Index series.
Smaller FTSE Responsible Investment Indices include the Catholic Values Index, the Calvert Social Index, the FTSE4Good indices, and the Dow Jones family of SRI Indices, among others. The KLD400 index screens the companies’ performance on a set of ESG criteria. It eliminates those companies that are involved in non-eligible industries. Impax, a specialist finance house (that focuses on the markets for cleaner or more efficient delivery of basic services of energy, water and waste) also maintain a group of FTSE Indices that are related to environmental technologies and business activities (FTSE Environment Technology and Environmental Opportunities). The Catholic Values Index uses the US Conference of Catholic Bishops’ Socially Responsible Investment Guidelines (i.e. positive screening approach) to scrutinise eligible companies (e.g., corporations with generous wage and benefit policies, or those who create environmentally beneficial technologies). This index could also exclude certain businesses trading in “irresponsible” activities. Calvert Group’s Calvert Social Index examines 1,000 of the largest US companies according to their social audit of four criteria: the company’s products, their impact on the environment, labour relations, and community relations. The latter “community relations” variable includes issues such as the treatment of indigenous people, provision of local credit, operations of overseas subsidiaries, and the like. The responsible companies are then featured in the Index when and if they meet Calvert’s criteria. This index also maintains a target economic sector weighting scheme.
Other smaller indices include; Ethibel Sustainability Index for Belgian (and other European) companies and OMX GES Ethical Index for Scandinavian companies, among others. Generally, these SRI indices are considered as investment benchmarks. In a nutshell, SRI Indices have spawned a range of products, including index mutual funds, ETFs, and structured products. A wide array of SRI mutual funds regularly evaluate target companies and manage their investment portfolios. Therefore, they are expected to consider other important criteria such as risk and return targets. For instance, iShares lists two ETFs based on the KLD Index funds, and the Domini itself offers a number of actively managed mutual funds based on both ESG and community development issues (such as impact investments). In addition, there are research and ratings vendors who also manage a series of mutual funds, including Calvert and Domini.