By Ron Robins
The growth of ethical stock and bond indices around the world has been exciting and rapid in recent years. There is hardly a continent where they are not represented. Investors everywhere want to make good returns by doing good. Many mutual funds, unit trusts, and exchange traded funds (ETFs), are now based on these indices.
The performance of any particular index generally depends on the popularity of the sectors represented within it. The attention on climate change benefits the green-sustainability sector which has a narrow focus on green technology and alternative energy. The socially responsible-ethical indices are more diversified and often follow larger stock market trends. They usually have little exposure to commodities and extractive industries, and tend to be heavily weighted in technology, health, finance and consumer goods. (A review of the articles on our Ethical Investing Studies/Research page might be helpful in understanding the composition and performance of these indices and associated funds.)
Here is a brief description, with links, to what I believe are the most prominent of these indices. Information and performance of funds associated with an index can usually be found on its website.
ACT Australian Cleantech Index (Australia)
“The ACT Australian Cleantech Index provides a measure of the performance of the Australian listed stocks in the Cleantech sector.”
FTSE Environmental Technology Index Series (U.K.)
“FTSE Group has launched the FTSE Environmental Technology Index Series in collaboration with the environmental technology specialist, Impax Asset Management, to provide two new environmental technology index solutions: the FTSE ET50 Index and FTSE Environmental Opportunities All-Share Index.”
Impax ET50 (U.K.)
The Impax ET50 is a stock index of companies whose core business involves environmental technologies.
NASDAQÂ® Clean EdgeÂ® U.S. Liquid Series Index (CELS) (U.S.A.)
“The NASDAQÂ® Clean EdgeÂ® U.S. Liquid Series Index (CELS) is a modified market capitalization-weighted index designed to track the performance of companies that are primarily manufacturers, developers, distributors, or installers of clean-energy technologies.”
The Renaissance Green IPO Index (U.S.A.)
“The Renaissance Green IPO Index captures the performance of newly public companies whose products and services offer solutions to environmental problems.”
WilderHill New Energy Global Innovation Index (U.K. & U.S.A.)
“The WilderHill New Energy Global Innovation Index is comprised of companies worldwide whose innovative technologies and services focus on generation and use of cleaner energy, conservation and efficiency, and advancing renewable energy generally.”
WilderHill Clean Energy Index (U.S.A.)
WilderHill Clean Energy Index is an American Stock Exchange based index, “… comprised of publicly traded companies whose businesses stand to benefit substantially from societal transition toward the use of cleaner energy and conservation.”
Socially Responsible-Ethically Focused Indices:
Bovespa ISE (Brazil)
“ISE is designed to measure the return on a portfolio composed of shares of companies highly committed to social responsibility… corporate sustainability… good practices in the Brazilian corporate environment.”
Calvert Social Index (U.S.A.)
“… the Calvert Social IndexTM, as a broad-based, rigorously constructed benchmark for measuring the performance of US-based socially responsible companies.”
Domini 400 Social Index(U.S.A.)
“… KLD′s Domini 400 SocialSM Index (DS400) is a float-adjusted market capitalization weighted common stock index modeled on the S&P 500Â® Index.”
Dow Jones Sustainability Indices (Global)
Dow Jones Sustainability Indices are North American and global socially and environmentally screened stock indices.
FTSE4Good Index Series (Global)
Financial Times of London share indices of socially and environmentally screened firms. Indices range from individual countries to specific industrial sectors.
India Islamic Index (India)
“The Eastwind Capital Advisors Pvt Ltd., the Indo-Arab Economic Forum and Institute of Objective Studies launched the EW India Islamic Index… comprises only of Shariah compliant companies equity and excludes companies engaged in alcohol products, pork-related products, conventional financial services like banking and insurance, gambling, hotels and all other business which the Shariah supervisory board considers as unethical.”
Jantzi Social Index (JSI) (Can.)
The Jantzi Social Index is a Canadian socially and environmentally screened share index.
JSE SRI Index (South Africa)
“The JSE′s Socially Responsible Investment (“SRI”) Index was launched in May 2004 in response to the burgeoning debate around sustainability globally and particularly in the South African context.”
KLD Broad Market Social Index (U.S.A.)
“The KLD Broad Market SocialSM Index (BMS)… capturing the best environmental, social and governance (ESG) performers in each sector of the Russell 3000… represents 98% of the capitalization of the US equity market.”
KLD U.S. Corporate Bond (USCB) Index (U.S.A.)
“The [KLD U.S. Corporate Bond] investable indexes are the first to apply environmental, social and governance (ESG) performance factors to a U.S. fixed income asset class.” (I have included here a separate KLD link as this class of index, an ESG corporate bond index, is the first of its kind in the US.)
LOHAS Index (U.S.A.)
“LOHAS is an acronym for Lifestyles of Health and Sustainability. [Companies in this index] practice ’responsible capitalism’ by providing goods and services using economic and environmentally sustainable business practices.” There are three indices: the LOHAS Index, Healthy Living Index, and Sustainable Economy Index.
S&P ESG India (India)
“The S&P ESG India index provides investors with exposure to a liquid and tradable index of 50 of the best performing stocks in the Indian market as measured by environmental, social, and governance parameters.”
SRI Index Malaysia & Singapore SRI Index (Malaysia)
“OWW Consulting launched the Responsibilityâ„¢ SRI Index Series which aims to identify companies in Malaysia and Singapore with good CSR (or Economic, Social and Governance, ESG) reporting… “
From the above it is clear that ethical investors can now invest globally and be well diversified. Many more ethically-based indices are likely in the years ahead.
September 5, 2008
© Ron Robins 2008.