S&P/IFCI Carbon Efficient Index Methodology

Transcription

1 S&P/IFCI Carbon Efficient Index Methodology S&P Dow Jones Indices: Index Methodology October 2017

2 Table of Contents Introduction 2 Highlights 2 Eligibility Criteria 3 Eligibility Factors 3 Index Construction 4 Approaches 4 Constituent Weight Adjustment 4 Shares Outstanding 4 Multiple Classes of Stock 4 Float Adjustment 4 Index Maintenance 6 Rebalancing 6 Corporate Actions 6 Index Data 8 Calculation Return Types 8 Index Governance 9 Index Committee 9 Index Policy 10 Announcements 10 Pro-forma Files 10 Holiday Schedule 10 Rebalancing 10 Unexpected Exchange Closures 10 Recalculation Policy 10 Contact Information 11 Index Dissemination 12 Tickers 12 FTP 12 Web site 12 Appendix: S&P Trucost Ltd. Methodology 13 Disclaimer 14 S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 1

3 Introduction The S&P/IFCI Carbon Efficient Index is designed to measure the performance of investable emerging market companies, selected and re-weighted to have a lower level of carbon emissions while closely tracking the S&P/IFCI LargeMidCap Index (the underlying index). The index retains the same constituents as the underlying index, but with index weight adjustments made due to comparisons among companies within the same global sectors, utilizing the Carbon Footprint metric. The Carbon Footprint is calculated by S&P Trucost Limited, a subsidiary of S&P Dow Jones Indices LLC (S&P Trucost Ltd.) and is defined as the company s annual greenhouse gas (GHG) emissions assessment, expressed as tons of carbon dioxide equivalent (CO 2 e), divided by annual revenues. For more information on the S&P/IFCI LargeMidCap Index, please refer to the S&P Global BMI, S&P/IFCI Methodology document located on our Web site, This methodology was created by S&P Dow Jones Indices to achieve the aforementioned objective of measuring the underlying interest of each index governed by this methodology document. Any changes to or deviations from this methodology are made in the sole judgment and discretion of S&P Dow Jones Indices so that the index continues to achieve its objective. Highlights The index is an investable emerging market equity index whose constituents are members of the underlying index. Each constituent is mapped to its recent S&P Trucost Ltd. Carbon Footprint and belongs to a market uniquely identified by the country of origin and sector. The index constituent weight adjustments are designed to create a portfolio where the overall carbon emissions are reduced versus those of the underlying index. At each annual reconstitution, the stocks in the underlying index are assigned a Carbon Footprint. Based on the benchmark index weights in the underlying index and the unique Carbon Footprint assigned, each stock s carbon score is calculated. Furthermore, the ranking of each stock within the GICS sector that it belongs is also determined. The individual index weights, then, undergo adjustments under a prescribed set of rules to create the final weights of constituents. S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 2

4 Eligibility Criteria Eligibility Factors The universe from which the index constituents are drawn is the S&P/IFCI LargeMidCap Index. All companies in the universe are subjected to a ranking process within their respective GICS sector, which incorporates each company s Carbon Footprint. A security must meet all of the following criteria on the rebalancing reference date in order to be classified as an Eligible Security. S&P/IFCI LargeMidCap Index. Each stock must be a member of the S&P/IFCI LargeMidCap Index. Carbon Footprint. The constituents must have a recent annual Carbon Footprint metric, used to obtain its Carbon Score, calculated by S&P Trucost Ltd., prior to the rebalancing reference date. S&P Trucost Ltd. evaluates the environmental performance for a given company and produces an annual emissions figure. If a company does not have a recent carbon footprint it is assigned a score based on its regional and sector carbon average. If S&P Trucost Ltd. does not calculate a Carbon Score for a company, it is not eligible. S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 3

5 Index Construction Approaches The index is a modified-capitalization weighted index, based originally on the float-adjusted shares outstanding in the underlying index. The constituents and their weights are modified at each rebalancing to reflect a prescribed adjustment process that seeks to closely track the underlying index. For more information on the Index calculation methodology, please refer to S&P Dow Jones Indices Index Mathematics Methodology. Constituent Weight Adjustment All individual constituents of the index are assigned a Global Sector Rank within the respective sector, based on a comparison of all constituents within the same sector. The index weights of the qualifying constituents are, then, adjusted according to a prescribed set of rules that seeks to reduce the overall Carbon Score of the index and minimize tracking error versus the underlying index. The individual Carbon Footprint metric is used in conjunction with its benchmark weight in the underlying index to obtain its Carbon Score. Carbon Scores, in turn, are then used to determine percent rankings of each stock s score with respect to all stocks in each given sector. All constituents whose percent rankings are in the top half of their respective global sector rankings will have their index weights reduced by 50%. Such set-asides are, then, redistributed on a pro-rata basis to the remaining constituents that are in the bottom half of their respective global sector rankings. Constituents at exactly the mid-point of the global sector ranking are exempt from this adjustment process. If the percent rankings of all of the stocks within a given sector are either over 50% or under 50%, then the weights for these stocks will also not be adjusted. Shares Outstanding The shares counted for the sector weightings criteria and used as inputs in the optimization model are common shares outstanding. This count is float-adjusted to reflect only shares available to the general market. Specific share counts and float factors are calculated by S&P Dow Jones Indices. For float adjustment methodology, please see S&P Dow Jones Indices Float Adjustment Methodology. Multiple Classes of Stock In some cases, companies issue multiple share classes. A separate investable weight factor (IWF) is calculated for each class and the class is included, providing it meets the eligibility criteria and foreign investors may hold shares in the class. Companies delisted as a result of merger, acquisition or other corporate action are removed at a time announced by S&P Dow Jones Indices, normally at the close of the last day of trading. Constituents that are halted from trading may be kept in the index until trading resumes, at the discretion of S&P Dow Jones Indices. Float Adjustment Investable Weight Factors (IWF), which define the available float for a stock in the underlying index, are reviewed as part of the annual reconstitution process. S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 4

6 Please refer to S&P Dow Jones Indices Float Adjustment Methodology for a detailed description of float adjustment and Investable Weight Factor (IWF). For more information on the modified capitalization indices, please refer to S&P Dow Jones Indices Index Mathematics Methodology. S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 5

7 Index Maintenance Rebalancing Annual Reconstitution. The index is reconstituted annually, effective after the close of business on the third Friday of September. Index membership is reviewed during this time period using the last business day of July as the reference date. The composition of the index is derived from the underlying index. The annual reconstitution requires a review of constituents Carbon Footprint scores via S&P Trucost Ltd., as well as shares and float factors. Quarterly Rebalancing. During the quarterly rebalancings of the underlying index in March, June and December, shares outstanding and IWFs are researched. Even if shares and IWFs change during the intra quarter reviews, a company s AWF in the index will not be altered as a result. For more information on AWFs and IWFs, please refer to S&P Dow Jones Indices Index Mathematics and Float Adjustment Methodologies. For more information on the size segment indices please refer to the S&P Global BMI, S&P/IFCI Methodology. Additions. Stocks can only be added to the index at the quarterly rebalancings or as eligible spin-offs or IPOs, described below. The changes are implemented after the close of trading on the rebalancing effective date or on the ex-date when an eligible spin-off or IPO is added to the underlying index. Deletions. A stock will be deleted from the index when it is deleted from the underlying index. It can also be deleted from the index at the annual rebalancing if it does not meet the eligibility criteria on the rebalancing reference date. Spin-Offs. In the event that a company in the S&P/IFCI Composite Index spins off a LargeMid company, it will be added to the index, as well as the underlying index, with the same AWF as that of its parent company. If the spun-off company is not eligible for continued inclusion in the index, the spun-off company is added at a zero price at the market close of the day before the ex-date (with no divisor adjustment) and removed after at least one day of regular way trading (with a divisor adjustment). For further information, please refer to the Treatment of Spin-offs in S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Initial Public Offerings (IPOs). If a recent IPO is added into the underlying index, it is also added to the index with its full float-adjusted market capitalization. Corporate Actions Corporate actions (such as stock splits, stock dividends, spin-offs and rights offerings) are applied after the close of trading on the day prior to the ex-date. For more information, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Mergers & Acquisitions. If two companies in the index merge, or if a company in the index acquires a non-constituent; the post-merger company remains in the index until the next rebalancing, when it is reviewed according to the standard inclusion criteria. If a company in the index is acquired by a nonconstituent, the constituent is deleted from the index and the post-merger company is not included in the S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 6

8 index. The acquiring company may be added to index at the next rebalancing if it meets the inclusion criteria. If both pre-merger companies are in the index, then the weight of the post-merger company shall be assigned the total, combined weight of the company deemed the acquirer by S&P Dow Jones Indices. If only one of the pre-merger companies is in the index, the weight for the post-merger company shall be the same as the company that was previously in the index. Carbon Footprint Change. Carbon Footprints are researched annually for each company, approximately eight months following the company s fiscal year end. Carbon Footprints are updated on an as-needed basis following corporate events (mergers and acquisitions, spinoffs, etc.) and underlying data point revisions. Any update to a company s Carbon Footprint is applied to the screening process at the time of the next rebalancing. Other Adjustments. In cases where there is no achievable market price for a stock being deleted, it can be removed at a zero or minimal price at the Index Committee s discretion, in recognition of the constraints faced by investors in trading bankrupt or suspended stocks. S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 7

9 Index Data Calculation Return Types S&P Dow Jones Indices calculates multiple return types which vary based on the treatment of regular cash dividends. The classification of regular cash dividends is determined by S&P Dow Jones Indices. Price Return (PR) versions are calculated without adjustments for regular cash dividends. Gross Total Return (TR) versions reinvest regular cash dividends at the close on the ex-date without consideration for withholding taxes. Net Total Return (NTR) versions, if available, reinvest regular cash dividends at the close on the ex-date after the deduction of applicable withholding taxes. In the event there are no regular cash dividends on the ex-date, the daily performance of all three indices will be identical. For a complete list of indices available, please refer to the daily index levels file (.SDL ). For more information on the classification of regular versus special cash dividends as well as the tax rates used in the calculation of net return, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices Methodology located on our Web site, For more information on the calculation of return types, please refer to S&P Dow Jones Indices Index Mathematics Methodology located on our Web site, S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 8

10 Index Governance Index Committee S&P Dow Jones Indices Global Thematic & Strategy Index Committee maintains the index. All committee members are full-time professionals at S&P Dow Jones Indices. The Index Committee meets at least monthly. At each meeting, the Committee may review pending corporate actions that may affect index constituents, statistics comparing the composition of the index to the market, companies that are being considered as candidates for addition to the index, and any significant market events. In addition, the Index Committee may revise index policy covering rules for selecting companies, treatment of dividends, share counts or other matters. S&P Dow Jones Indices considers information about changes to its indices and related matters to be potentially market moving and material. Therefore, all Index Committee discussions are confidential. For information on Quality Assurance and Internal Reviews of Methodology, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 9

11 Index Policy Announcements All index constituents are evaluated daily for data needed to calculate index levels and returns. All events affecting the daily index calculation are typically announced in advance via the Index Corporate Events report (.SDE), delivered daily via ftp to all clients. Any unusual treatment of a corporate action or short notice of an event may be communicated via to clients. Index methodology is constantly under review for best practices, and any changes are announced well ahead of time via the Web site and to all clients. For more information, please refer to the Announcements section of S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Pro-forma Files In addition to the corporate events file (.SDE), S&P Dow Jones Indices provides constituent pro-forma files each time the index rebalances. The pro-forma file is typically provided daily in advance of the rebalancing date and contains all constituents and their corresponding weights and index shares effective for the upcoming rebalancing. Since index shares are assigned based on prices seven business days prior to the rebalancing, the actual weight of each stock at the rebalancing differs from these weights due to market movements. Please visit for a complete schedule of rebalancing timelines and pro-forma delivery times. Holiday Schedule The index is calculated on all business days of the year. A complete holiday schedule for the year is available at Rebalancing The Index Committee may change the date of a given rebalancing for reasons including market holidays occurring on or around the scheduled rebalancing date. Any such change will be announced with proper advance notice where possible. Unexpected Exchange Closures For information on Unexpected Exchange Closures, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Recalculation Policy For information on the recalculation policy, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 10

12 For information on Calculations and Pricing Disruptions, Expert Judgment and Data Hierarchy, please refer to S&P Dow Jones Indices Equity Indices Policies & Practices document located on our Web site, Contact Information For questions regarding an index, please contact: S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 11

13 Index Dissemination Index levels are available through S&P Dow Jones Indices Web site at major quote vendors (see codes below), numerous investment-oriented Web sites, and various print and electronic media. Tickers Index S&P\IFCI Carbon Efficient Price Index S&P\IFCI Carbon Efficient Total Return Index S&P\IFCI Carbon Efficient Net Total Return Index Bloomberg SGRICUP SGRICUT SGRICUN FTP Daily stock level and index data are available via FTP subscription. For product information, please contact S&P Dow Jones Indices, Web site For further information, please refer to S&P Dow Jones Indices Web site at S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 12

14 Appendix: S&P Trucost Ltd. Methodology S&P Trucost Limited, a subsidiary of S&P Dow Jones Indices LLC ( S&P Trucost Ltd. ), has analyzed the environmental performance of over 4,200 companies worldwide. S&P Trucost Ltd. has the world s largest bank of standardized greenhouse gas ( GHG ) emissions data, which provides a proxy for carbon performance. To calculate the carbon intensity of any company included in the S&P U.S. Carbon Efficient Index ( Index ), S&P Trucost Ltd. reviewed company annual reports and accounts, environmental/sustainability reports, public disclosures and corporate Web sites. However many companies do not disclose their environmental or carbon impacts. Where there was no public disclosure, S&P Trucost Ltd. employed its environmental profiling system. This proprietary Input- Output model maps the GHG impacts of business activities in 464 sectors. S&P Trucost Ltd. s broad coverage seeks to ensure that all non-disclosing companies are considered for Index eligibility, not just those that disclose environmental information. Six greenhouse gases (GHGs) are included in the analysis; these are all the GHGs regulated under the Kyto protocol. Each gas has a different capacity to cause global warming. Although carbon dioxide ( CO 2 ) is the least potent of the GHGs, it is one of the most prevalent in terms of man-made emissions. The GHGs have been calculated for each company and converted into tons of carbon dioxide equivalents based on the appropriate Global Warming Potential factors. The Global Warming Potential ( GWP ) index, published by the Intergovernmental Panel on Climate Change ( IPCC ), assesses the effect of the emissions of different gases over a 100-year time period, relative to the emission of an equal mass of CO 2. GWP enables all the GHGs to be expressed in terms of CO 2 equivalents, or CO 2 e, and has been used as the basis for the analysis for the index calculation. Quantities of greenhouse gas emissions are, then, normalized by sales to calculate the company s carbon footprint, or carbon intensity. The smaller the carbon footprint, the less investments contribute to climate change and the lower the Index s exposure to the rising costs of emitting carbon dioxide. S&P Dow Jones Indices: S&P/IFCI Carbon Efficient Index Methodology 13

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