The Global Sustainability Signatories Index 7.5% VC ER (GSSI) provides exposure to up to 100 Global Compact signatories who outperform their peers in terms of their environmental, social and governance performance. It stems from the belief that sustainable companies can yield good risk-adjusted returns. Tobacco and energy companies are excluded along with companies embroiled in serious controversies.
How do we define sustainability?
Sustainalytics measures the sustainability performance of companies by assessing how well they manage environmental, social and governance factors. The factors that are assessed are based on the sector in which the company operates. For example, data privacy is an important factor for media companies, while CO2 is more relevant for oil and gas companies.
Environmental issues include a company’s policies and programs to manage natural resources and prevent or minimize pollution and emissions. Managing these issues well can reduce regulatory and reputational risks.
Our social indicators look at the way the company treats people across its value chain – from its suppliers to its employees, customers and the communities where it operates. Managing these relationships well is crucial for the company’s reputation, brand and licence to operate.
When we assess a company’s corporate governance structures we look at the checks and balances put in place to safeguard shareholder and stakeholder rights. Some of the issues we look at include executive compensation, board accountability and business ethics (bribery and corruption).
(As of 30 September 2018)
Regional Weight in Percentages
Sector Weight in Percentages
Top 10 Constituents
|3||Kimberly-Clark Corporation||Consumer non-durables|
|5||Hewlett Packard Enterprise Company||Technology|
|6||International Flavors & Fragrances||Consumer non-durables|
|9||Westpac Banking Corporation||Finance|
|10||Nestlé S.A.||Consumer non-durables|
Eligibility and Selection
The Index is calculated in USD and represents returns net of dividend tax.
To be eligible, companies must be:
- In Sustainalytics’s research universe (>11,000 listed companies)
- A Global Compact signatory
- Compliant with the Global Compact’s 10 Principles on human rights, labor the environment and anti-corruption
- Not involved in the manufacturing or distribution of tobacco
- Not involved in the energy sector
- Not involved in a level 4 or 5 controversy. Sustainalytics rates controversies on a hurricane scale from 1 to 5 with 5 being the most egregious controversies
New additions require a positive EBIT for the past three years. Current constituents are removed if they’ve had a negative EBIT for two consecutive years.
The free-float market cap must be larger than $500mn and the average daily trading over the past three months above $10mn for he past 120 days.
Volatility Control Overlay
The Index is calculated as an excess return over 3-month USD Libor rate, designed to achieve a 7.5% level of volatility. This is done by dynamically allocating to the equity index and Libor USD Overnight Rate depending on the realized volatility in the equity index.
The bottom 75% of companies in each sector are removed from consideration. From the remaining top quartile companies, the companies with the highest ESG rating are selected so the sector weights for each region in the index matches the global benchmark.
Rebalancing and Index Calculation
The index is rebalanced once a year to select new sustainability constituents. The selected stocks are weighed based on their market capitalization with the following restrictions: The weight of each stock is capped at 10% and it should not exceed 10% of the average daily trading volume. The constituents are re-weighted each quarter to match the weights of the last rebalancing and the index value is calculated in USD by Solactive.
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