UN Global Compact Launches Stock Index – And it Outperforms the Market!

by Hank Boerner – Chairman, G&A Institute

The number of Sustainability Indexes available to investors continues to grow — demonstrating the growing interest in Sustainability by investors.  Another major index was announced yesterday under the UN Global Compact brand.  With the recent announcement of the Thomson Reuters Corporate Responsibility Indexes in April, we see this space really heating up.

The “Global Compact 100” stock index was launched by the UN Global Compact (UNGC) yesterday.  The index is composed of equities  that are committed to the UN’s 10 principles.  The index is also known as the “GC 100” and was launched in collaboration with the ESG research firm Sustainalytics.  The companies selected adhere to the Global Compact’s 10 principles and also show commitment by “executive leadership and consistent profitability”.

On top of the companies commitment to Sustainability, UNGC says the index has outperformed the FTSE All World Index for 2 years straight, with a 26.4% gain vs a 22.1% (FTSE All World Index) gain in the past 1 year, and a 19.0% gain vs a 17.7%  gain in the last 2 years.  In the past 3 years the index has matched the FTSE All World return at 12% – this illustrates once again the claim that their is no cost to investing in Sustainable companies, and in many cases there is an advantage in the marketplace leading to out-performance of the market.

A proprietary methodology is used that investigates a range of data points devised from the Global Compact’s ten principles in the areas of human rights, labor standards, environmental stewardship, and anti-corruption. Only the Global Compact signatories that are currently covered in Sustainalytics research universe – approximately 722 companies in total were used in creating the index. (The UNGC has just about 8,000 corporate signatories, of which approximately 1,000 are publicly traded companies.)

Here is some info on the Eligibility for the Index and the Constituent Selection Process take n from the UNGC:

Eligibility for the Index:
Companies are eligible for the GC 100 if they or their parent company have been Global Compact signatories for a minimum of one year, are publicly listed, and fall within the research universe of Sustainalytics, which provided the research for the index. As well, they must pass a financial screen that requires positive pre-tax earning on average for the 3 years preceding the index annual review. In the case that a company is already a constituent of the index, it will only be removed if there are two consecutive years of negative 3-year average earnings figures.

Constituent Selection Process:
The constituents of the GC 100 are reviewed on an annual basis in September.

Constituents are chosen for the Index with the dual goal of having a sector representation (free-float market cap weights) within a range of the key, well-known global indexes; and to choose companies that have strong practices and performance in adhering to the principles of the UN Global Compact around management of human rights, labour rights, the environment and anti-corruption. Among the indicators used in the selection of the constituents were the company’s level of reporting in relations to the Global Compact’s required annual Communication on Progress and whether or not the company’s chief executive submitted its required annual letter of support for the UN Global Compact and its principles.

As part of the index annual review, there may be changes in the constituents to better align the sector representation of the GC 100 with global indexes or to replace some constituents due to changes in company practices or performance with respect to implementation of the Global Compact principles.

 Stay tuned to SRI Equity Indexes for investors — this is a growth industry now.

Read the full announcement on Accountability Central here.. 

 

 

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