June 1, 2020

The Screened and Prime Series: ESG Attributes and Market Returns During the Pandemic

Below is an excerpt from ISS ESG’s recently released “The Screened and Prime Series: ESG Attributes and Market Returns During the Pandemic.” The full paper is available for download from the Institutional Shareholder Services (ISS) online library.

The Solactive ISS ESG Screened and Prime Series are a family of global ESG equity benchmarks launched collaboratively by ISS ESG and Solactive in 2019. The two index families answer passive investors’ need for robust benchmark methodologies addressing differentiated ESG client requirements. Both families employ Solactive’s Global Benchmark Series (GBS) as their starting constituent universes and implement ESG overlays powered by ISS ESG’s datasets. The indexes are available globally across developed and emerging markets.

KEY TAKEAWAYS:

  • The Solactive ISS ESG Screened and Prime Series indexes have significantly outperformed their parent GBS universe during the COVID-19 pandemic while demonstrating robust ESG outcomes along four dimensions.
  • Norms and Sector Research: The ESG indexes remove all exposure to companies with verified norms violations and sectors such as banned weapons, tobacco and fossil fuel production. In addition, the Prime Series removes exposure to companies with alleged norms violations.
  • ESG Ratings: Requiring ISS ESG’s best-in-class Prime Rating, the Prime Series shows a 30 percent higher ESG Performance Rating compared with its parent universe. The broader Screened Series shows modestly higher ratings than the GBS.
  • Carbon and climate: The ESG indexes show 50 to75 percent reductions in carbon emissions (Scopes 1, 2, and 3) compared with the GBS. They are also 2-degree aligned through the year 2050, in contrast with the GBS which is only 2-degree aligned through 2031. In addition, the ESG indexes’ power generation capacity is majority renewable with essentially no exposure to in-the-ground fossil fuel reserves.
  • U.N. Sustainable Development Goals: While the GBS is near-neutral with respect to SDG alignment based on the ISS ESG SDG Impact Rating, the Screened Series shows limited positive impact and the Prime Series significant positive impact. The Prime Series shows improvement in all 17 SDGs, particularly #3 “Good Health and Wellbeing”, #8 “Decent Work and Economic Growth” and #13 “Climate Action.”

By: Hernando Cortina, ISS ESG

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