INDEX RULES ECPI WORLD ESG EQUITY INDEX

Transcription

1 INDEX RULES ECPI WORLD ESG EQUITY INDEX FEBRUARY 2018

2 2 TABLE OF CONTENT INTRODUCTION... 3 GUIDING PRINCIPLES... 4 INDEX CONSTRUCTION... 5 CALCULATION METHOD... 7 REVIEW... 9 ADJUSTMENTS FOR CORPORATE ACTIONS RETROSPECTIVE CHANGES TO PREVIOUSLY PUBLISHED INDEX VALUES ECPI ESG SCREENING METHODOLOGY AND RATING COMPLIANCE STATEMENT APPENDIX A: DIVIDEND WITHHOLDING TAXES APPENDIX B: DEFINITIONS CONTACTS... 15

3 3 INTRODUCTION The present document defnes the rules for the calculaton and management of the ECPI World ESG Equty Index. The Index Rules and Index Consttuents are avalable on ECPI s webste, and/or can be requested at ndces@ecpndces.com. The Index values are avalable on Bloomberg wth the followng dentfers: BLOOMBERG TICKER GALPHPWP Index GALPHPWR Index GALPHPWN Index GALPHEWP Index GALPHEWR Index GALPHEWN Index INDEX NAME ECPI World ESG Prce Index ECPI World ESG Total Return Index ECPI World ESG Net Return Index ECPI World ESG Hedged Prce Index ECPI World ESG Hedged Total Return Index ECPI World ESG Hedged Net Return Index ECPI SUSTAINABLE INDICES The ECPI World ESG Index s desgned to be a member of the broadest famly of ECPI Sustanable Benchmark and Tradable Indces. The objectve of ECPI s that of provdng the user wth tradable ndces that n ther constructon and management take nto account, n addton to tradtonal fnancal crtera, also non-fnancal dmensons. All of ECPI Indces are characterzed by () ether a rgorous excluson of companes that operate n certan sectors n coherence wth the ethcal sensblty of the nvestor or by () a postve selecton of companes that demonstrate a sold ESG profle. ECPI Indces may be used as the bass for varous nvestment vehcles: they allow for an effcent mplementaton of socally responsble or sustanable mandates as well as ndex-trackng portfolos and exchange traded funds. Socally Responsble and Sustanablty crtera used to select the ndces consttuents, offer a condut for nvestors to jontly express ther nterest n sustanablty and, thus, to collectvely move the relevant ssues up the corporate agenda. ECPI Indces are managed by ECPI, whch s responsble for: The ndex constructon, management and dstrbuton. The management of the ndces selecton crtera and of the revew of all ndces. The correct applcaton of the Index Rules n mantanng the ndces. The Socally Responsble selecton crtera. ECPI may change exstng socally responsble crtera, remove exstng crtera or add new crtera. ECPI wll endeavor to gve notce before mplementaton of changes to selecton crtera.

4 4 GUIDING PRINCIPLES The ECPI Socally Responsble Equty Indces famly s bult and mantaned accordng to the followng prncples: Market Representaton The ndces represent the reference markets and reflect the opportuntes avalable to the nvestors. The man crtera used to ensure market representaton are market captalzaton and sector composton. Investble and Replcable The ndces should be capable of beng replcated by users, ths objectve s acheved by: free float adjustng of consttuent captalzaton and selecton of securtes wth reasonable sze and lqudty. Dscplned Approach ECPI Indces are constructed and managed usng a set of prncples, rules and gudelnes. Ths approach s followed to mantan the attrbutes of a benchmark, such as stablty of the ndex, proper dversfcaton across ndustres and securtes and accurate respect of the socally responsble crtera. Transparency The ndces are bult and mantaned usng clear and transparent rules, avalable on publc sources; moreover the ndces are publshed daly on the most mportant fnancal nfo provders worldwde (Bloomberg, Thomson Reuters). Independence and Objectvty The ndces are based on ndependent and objectve content decsons. ECPI beleves n an open dalogue wth ts clents, consderng wth objectvty ther suggestons to enhance the ndces provson. Analyzng all the feedback receved by ts clents, ECPI takes ndependently the fnal decson n order to preserve the qualty of the ndces. Contnuty and Indces Turnover ECPI Indces are managed to ensurng the contnuty of the ndces. Contnuty refers to the consstent applcaton of the ndex methodology. The ndces are also managed wth the am of keepng the level of ndex turnover relatvely low, whle at the same tme reflectng the evoluton of the reference market. Sustanablty Every securty whch composes the ndces has to satsfy defned socally responsble nvestment crtera.

5 5 INDEX CONSTRUCTION EQUITY UNIVERSE The ndex constructon process starts wth the dentfcaton of the Equty Unverse. Equty securtes wth a mnmum market captalzaton of 400 mllon are elgble for ncluson n the Equty Unverse. Investment trust, mutual funds, Exchange Traded Funds (ETFs) and equty dervatves are not ncluded n the Equty Unverse. Convertble and preference shares and loan stocks are excluded untl converted. Where there are multple lnes of equty captal n a company, all are ncluded and prced separately n the Equty Unverse. In general, companes and ther respectve securtes are classfed as belongng to the country n whch they are ncorporated. The country markets ncluded n the Global Developed Equty Unverse are: COUNTRY TABLE: ECPI WORLD ESG INDEX Australa Austra Belgum Canada Denmark Fnland France Germany Greece Hong Kong Ireland Israel Italy Japan Luxembourg Netherlands New Zealand Norway Portugal Sngapore Span Sweden Swtzerland Unted Kngdom Unted States Fnally, Companes whch have an ESG ratng less than E- (see pages 11-12) are not ncluded n the Equty Unverse (mnmum ESG Ratng). INVESTABLE EQUITY UNIVERSE Investable Equty Unverse s derved by applyng nvestablty screens to securtes n the Equty Unverse. The nvestablty screens used to determne the Investable Equty Unverse are: Mnmum Market Captalzaton Mnmum Free Float Adjusted Market Captalzaton Mnmum Lqudty Mnmum Free Float Mnmum Market Captalzaton In order to be ncluded n the Investable Equty Unverse must have a requred mnmum full market captalzaton. The Mnmum Market Captalzaton s derved as follows: Companes n the Equty Unverse are sorted n descendng order of full market captalzaton and and the cumulatve coverage of the free float adjusted market captalzaton of the Equty Unverse s calculated at each company.

6 When the cumulatve free float adjusted market captalzaton coverage of 99% of the sorted Equty Unverse s acheved, the full market captalzaton of the company at that pont defnes the Equty Unverse Mnmum Market Captalzaton Requrement. Companes wth a full market captalzaton lower than the Mnmum Market Captalzaton Requrement are excluded from the Investable Equty Unverse. Mnmum Free Float Adjusted Market Captalzaton The adjusted market captalzaton s defned as the total market captalzaton multpled by a free float factor. Companes wth a free float adjusted market captalzaton lower than the 150% of the Mnmum Market Captalzaton Requrement are excluded from the Investable Equty Unverse. Mnmum Lqudty Securtes whch do not turnover at least, on an annual bass, 20% of ther current captalzaton (after the applcaton of any free float factor) pror to selecton as an ndex consttuent, are excluded from the Investable Equty Unverse. In exceptonal market condtons, f tradng volumes are very low ECPI may reduce the percentage fgure stated above n order to avod a large amount of turnover n the Indces. Mnmum Free Float ECPI estmate of free float s based on publc avalable nformaton obtaned from multple nformaton sources. Estmated free float s rounded to the closest 5%. If the free float s less than 15%, the company s excluded from the Investable Equty Unverse. SELECTION ALGORITHM Once the Investable Equty Unverse s defned, the selecton process for the ECPI World ESG Index contnues accordng to the followng steps: For each Country, companes are sorted n descendng order of full market captalzaton and the cumulatve coverage of the free float-adjusted market captalzaton of the Country Unverse s calculated at each company. European Countres are aggregated n just one regon. 6 EUROPEAN COUNTRIES Austra Belgum Denmark Fnland France Germany Greece Ireland Israel Italy Luxembourg Netherlands Norway Portugal Span Sweden Swtzerland Unted Kngdom Stocks - already ncluded n the ndex current composton - comprsed n the cumulatve free floatadjusted market captalzaton coverage of 95% of the sorted country unverse are elgble for ncluson n the ndex. New Stocks not ncluded n the ndex current composton - comprsed n the cumulatve free floatadjusted market captalzaton coverage of 70% of the sorted country unverse are elgble for ncluson n the ndex. All elgble securtes n each Country Unverse are aggregated nto the new ndex composton.

7 7 CALCULATION METHOD CALCULATION FREQUENCY The Index s calculated and publshed daly, on a next day bass. The only days the ndex s not calculated are on days when all exchanges where ndex s consttuents are lsted are offcally closed. PRICES The ECPI Equty Indces end-of-day calculatons use closng trade prces. GMT WM Reuters Currency cross rates are used for the currency converson. INDEX ALGORITHM The actual trade prce of securtes s converted nto Euro and the ndces are then calculated usng the algorthm descrbed below. The Prce ndex s calculated as follows: I ( P ) t I ( P ) * t1 n 1 n 1 P P, t, t1 ff ff N N Where I(P) t = prce ndex value on day t Pt = closng share prce on day t Nt = number of shares n ssue on day t ff = free float factor n = number of ndex consttuents The gross (net) total return ndex s calculated as follows: I ( TR ) t I ( TR ) * t1 1 P, t ff n 1 N P, t1 n 1 ff D N, t ff N Where I(TR) t = total return ndex value on day t P,t = offcal closng prce n Euro for stock on day t D t = gross (net) dvdend n Euro on the ex-dvdend date t N = number of shares for stock = number of ndex consttuents ff = free float factor P,t N = Index market captalzaton on day t

8 8 D,t N = ndex dvdend amount on day t The net total return ndex uses net dvdends nstead of gross dvdends (see tax rates n Appendx A). HEDGING ALGORITHM The hedged ndex performance s calculated as the performance of the unhedged ndex n the base currency plus the hedge mpact n the base currency, as derved from the forward postons. The hedge mpact (HI) s calculated accordng to the followng formula: ( ) { ( )} Where t = Index calculaton date NAF = M = Frst calendar day of the month HI(t) = Index Hedge Impact at tme t = Currency weght n the ndex 2 days before next month frst day = Spot rate of the currency two busness days before the start of the current calendar month. Ths term determnes the notonal amount of the foregn currency to be sold correspondng to ts weght n the ndex = 1-month Forward for the currency one busness day before the start of the current calendar month (or last busness day of the prevous calendar month) = Interpolated odd-days forward rate of the currency on day t. The nterpolated odd-days forward rate s calculated accordng to the followng formula: {( ) } Where ( ) The performance of the hedged ndex total return net s calculated as: ( ) ( ) ( )

9 9 REVIEW Every three months ECPI revews the ndex consttuents n order to ensure market representaton. The rebalancng of the ndces consders the fnancal and extra-fnancal evoluton of the reference market. The evoluton may be due to economc and fnancal developments such as a change n the composton or structure of an ndustry (e.g. changes n the market captalzaton and representaton of a company) - as well as to changes n the sustanablty profle of the consttuents. The envronmental, socal and governance performance of companes elgble for ncluson n the Indces s montored by ECPI; each consttuent has to pass the ESG Screenng. The rules for nsertng and deletng securtes at the perodc revew are desgned to provde stablty n the selecton of consttuents of the ndces, whle ensurng the ndces contnue to be representatve of the reference market. The Market Captalzaton data used to update the nvestment unverse and rebalance the ndces are referred to the day of selecton prevous busness day closng (see tmetable below). The tmetable of the quarterly revew s reported below. Below the reference calendar for the quarterly revew. If the revew day falls on a holday, the subsequent workng day wll be consdered. REVIEW TIMETABLE TIME REFERENCE ACTION WHEN t 0 t 1 t 2 Selecton of the new consttuents Communcaton of the new consttuent Effectve Date: the new ndex s effectve 1st Frday of Dec, Mar, Jun, Sep 1st Frday of Dec, Mar, Jun, Sep 3rd Frday (closng) of Dec, Mar, Jun, Sep

10 10 ADJUSTMENTS FOR CORPORATE ACTIONS Corporate actons are treated by the ndex agent, S&P Dow Jones Indces, accordng to S&P Dow Jones Indces Corporate Actons Polces & Practces Methodology. The followng s an extract of S&P Dow Jones Indces Index Mathematcs Methodology for Cap Weghted Indces: There are a large range of dfferent corporate actons rangng from routne share ssuances or buy backs to unusual events lke spn-offs or mergers. These are lsted on the table below wth notes about the necessary changes and whether the dvsor s adjusted. CORPORATE ACTION INDEX ADJUSTMENT DIVISOR ADJUSTMENT Company added/deleted Net change n market value determnes the dvsor adjustment. Yes Change n shares outstandng Stock splt Spn-off Spn-off Spn-off Change n IWF Specal Dvdend Rghts offerng Any combnaton of secondary ssuance, share repurchase or buy back share counts revsed to reflect change. Share count revsed to reflect new count. Dvsor adjustment s not requred snce the share count and prce changes are offsettng. If the spun-off company s not beng added to the ndex, the dvsor adjustment reflects the declne n ndex market value (.e., the value of the spun-off unt). Spun-off company added to the ndex, no company removed from the ndex. Spun-off company added to the ndex, another company removed to keep number of names fxed. Dvsor adjustment reflects deleton. Increasng (decreasng) the IWF ncreases (decreases) the total market value of the ndex. The dvsor change reflects the change n market value caused by the change to an IWF. When a company pays a specal dvdend the share prce s assumed to drop by the amount of the dvdend; the dvsor adjustment reflects ths drop n ndex market value. Each shareholder receves the rght to buy a proportonal number of addtonal shares at a set (often dscounted) prce. The calculaton assumes that the offerng s fully subscrbed. Dvsor adjustment reflects ncrease n market cap measured as the shares ssued multpled by the prce pad. Yes No Yes No Yes Yes Yes Yes Wth corporate actons where cash or other corporate assets are dstrbuted to shareholders, the prce of the stock wll gap down on the ex-dvdend day (the frst day when a new shareholder s not elgble to receve the dstrbuton.) The effect of the dvsor adjustment s to prevent ths prce drop from causng a correspondng drop n the ndex. For more nformaton on the treatment of corporate actons, please refer to S&P Dow Jones Indces Equty Indces Polces & Practces document.

11 PUBLIC INFORMATIONSOURCES 11 RETROSPECTIVE CHANGES TO PREVIOUSLY PUBLISHED INDEX VALUES The ECPI Index Methodology does not allow retrospectve changes to prevously publshed ndex values ( Backfllng ). Dvsor correctons, ndex nput changes due to late dvdend announcements and other smlar adjustments are not consdered backfllng. ECPI ESG SCREENING METHODOLOGY AND RATING ECPI research process follows an objectve, rgorous and dscplned propretary methodology that translates qualtatve data nto quanttatve ndcators, assgnng to each ssuer an Envronmental, Socal and Governance (ESG) score and a ratng. ECPI uses a rule-based non-dscretonary approach consderng approxmately 100 key performance ndcators to evaluate an ssuer s envronmental, socal and governance sustanablty. ECPI evaluates companes n the followng areas 7 Envronmental Strategy and Polcy 13 Envronmental Management 3/4 Products - sector specfc 6/11 Producton Process - sector specfc 9 Employees and Human Captal 12 Communty Relatons 11 Markets 19 Corporate Governance & Shareholders ENVIRONMENTAL Score max 60 Ratng (9 notches) F=>EEE SOCIAL & GOVERNANCE Score max 60 Ratng (9 notches) F=>EEE ESG RATING Score max 120 Ratng (9 notches) F => EEE The tradtonal pllars of ESG scrutny are the followng: E S G Envronmental strategy, polcy and management system. Industry-specfc envronmental mpact of producton processes and products. Socal strategy and polcy: assessng the qualty of the company s relatonshps wth ts stakeholders (customers, compettors, employees, management, publc agences and regulators, shareholders, credtors, local government and nternatonal nsttutons), market postonng and compettor analyss. Governance structure: assessng both market and nternal management ssues, dentfyng the structure of the company s governng bodes, ts man operatng characterstcs, as well as the poltcal and regulatory/legal specfcs of the frm s country of afflaton. The analyss produces a score and a ratng. A company s overall ratng s the sum of the scores from each ndcator; the hgher the fnal score, the hgher the fnal ratng.

12 12 ECPI s propretary ratng scale ranges from F to EEE, along 9 notches. RATING LEVEL DEFINITION ECPI COMPANY RATING EEE EEE- EEE EEE- EE+ EE EE- E+ E E- F Very good Good Far Poor The company shows an nnovatve long-term strategc atttude, strong operatonal management practces and proactve actons to tackle socal and envronmental needs. The company shows a clear long-term strategc atttude, sound operatonal management practces and postve actons to tackle socal and envronmental needs. The company shows a basc long-term strategc atttude, standard operatonal management practces and/or average actons to tackle socal and envronmental needs. The company shows a poor long-term strategc atttude, weak operatonal management practces and/or neffectve-negatve actons to tackle socal and envronmental needs. VERY GOOD GOOD FAIR POOR EE+ EE EE- E+ E E- F NE* Controversal The company s nvolved n controversal COMPLIANCE STATEMENT ECPI Group keeps certan actvtes of ts busness unts separate from each other n order to preserve the ndependence and objectvty of ther respectve actvtes. As a result, certan busness unts ECPI group may have nformaton that s not avalable to other busness unts. ECPI Group has establshed polces and procedures that prohbt consttuents to ts ndces to be ncluded n an ndex on the bass of payment volunteered from them.

13 13 APPENDIX A: DIVIDEND WITHHOLDING TAXES COUNTRY NAME TAXATION COUNTRY NAME TAXATION Argentna 0% Macedona 10% Australa 30% Malaysa 0% Austra 27.50% Malaysa REITs 10% Bahran 0% Malta 0% Bangladesh 20% Maurtus 0% Belgum 30% Mexco 10% Bosna 5% Mexco REITs3 30% Botswana 7.50% Morocco 15% Brazl 0% Namba 20% Brazl (Interest on Captal) 15% Netherlands 15% Bulgara 5% New Zealand 30% Camboda 14% Ngera 10% Canada 25% Norway 25% Chle 35% Oman 0% Chna (Manland Incorporated) 10% Pakstan 15% Chna (Offshore Incorporated) 0% Panama 10% Colomba 5% Peru 5% Côte d Ivore 10% Phlppnes 30% Croata 12% Poland 19% Cyprus 0% Portugal 25% Czech Republc 35% Qatar 0% Denmark 27% Romana 16% Ecuador 0% Russa 15% Egypt 10% Saud Araba 5% Estona 0% Serba 20% Fnland 30% Sngapore 0% France 30% Sngapore REITs 10% Georga 5% Slovaka 0% Germany % Slovena 15% Ghana 8% South Afrca 20% Greece 15% South Korea 22% Hong Kong 0% Span 19% Hungary 0% Sr Lanka 14% Iceland 18% Sweden 30% Inda 0% Swtzerland 35% Indonesa 20% Tawan 20% Ireland 20% Thaland 10% Israel 25% Trndad & Tobago 10% Italy 26% Tunsa 5% Jamaca 33.33% Turkey 15% Japan 20.42% U.K. Corporatons 0% Jordan 0% U.K. REITS 20% Kazakhstan 15% U.S. 30% Kenya 10% Ukrane 15% Kuwat 0% Unted Arab Emrates 0% Latva 0% Venezuela 34% Lebanon 10% Vetnam 0% Lthuana 15% Zamba 15% Luxembourg 15% Data as of September 1, 2017

14 14 APPENDIX B: DEFINITIONS Index Consttuent or Consttuent Any securty comprsed n the ndex, provded that on any Reference Date and n the relevant Rebalance Perod, Consttuent shall nclude any stock whch wll be ncluded n the ndex as of the next Rebalance Date at the end of such Rebalance Perod. Rebalance Perod It s the tmeframe between Reference Date and Rebalance Date. Exchange and Related Exchange Each exchange on whch any Index Consttuent s, n the determnaton of ECPI, prncpally traded. Scheduled Tradng Day Any day on whch each Exchange and each Related Exchange are scheduled to be open for tradng for ther respectve regular tradng sesson. Dsrupted Day Any Scheduled Tradng Day on whch: () a relevant Exchange or any Related Exchange fals to open for tradng durng ts regular tradng sesson; or () a Market Dsrupton Event has occurred. Market Dsrupton Event The occurrence, n respect of the Index Consttuent of: a Tradng Dsrupton an Exchange Dsrupton an Early Closure where the aggregate of all Index Consttuents n respect of whch a Tradng Dsrupton, an Exchange Dsrupton or an Early Closure occurs, comprses 20 per cent or more of the aggregate number of all Index Consttuents for whch the Exchange and Related Exchange were scheduled to be open for tradng for ts regular tradng sesson on such day. Tradng Dsrupton Any suspenson of or lmtaton mposed on tradng by the Relevant Exchange or Related Exchange or otherwse and whether by reason of movements n prce exceedng lmts permtted by the Relevant Exchange and Related Exchange or otherwse. Exchange Dsrupton Any event that dsrupts or mpars the ablty of market partcpants n general to effect transacton n, or obtan market values for the Index Consttuents. Early Closure The closure on any Exchange Busness Day of the Relevant Exchange or any Related Exchange pror to ts Scheduled Closng Tme.

15 15 CONTACTS Index Dept. T ndces@ecpndces.com Flppo Bucc T f.bucc@ecpndces.com Bloomberg: ECPS Reuters: ECAPITAL Dsclamer Ths document has been prepared by ECPI Group S.r.l., a company organzed and exstng under the laws of Italy, wth regstered offce at Va Caradosso, Mlan, Italy (the ECPI Group Companes ) as part of ther nternal research actvty. The nformaton provded heren and, n partcular, the data contaned n ths document are taken from nformaton avalable to the publc. All nformaton contaned heren s obtaned from sources beleved by t to be accurate and relable. Whle the opnons and nformaton contaned n ths document are based on publc sources beleved to be relable and n good fath, ECPI Group Companes have not ndependently verfed the accuracy of such publc sources. Because of the possblty of human, techncal or whatsoever knd of smlar error, however, such nformaton s provded as s wthout warranty of any knd and ECPI Group Companes, n partcular, make no representaton or warranty, whether express or mplct, as to the farness, accuracy, tmelness, completeness, merchantablty and/or ftness of any such nformaton and opnons contaned n ths document. Accordngly, nether ECPI Group Companes nor any of ther respectve drectors, managers, offcers or employees shall be held lable for whatever reason (ncludng, wthout lmtaton, lablty n neglgence) for any loss (ncludng consequental loss), expense, consequental, specal, ncdental, drect or ndrect or smlar damage, whether or not advsed of the possblty of such damage, n connecton wth the farness, accuracy, tmelness, completeness, merchantablty and/or ftness of the nformaton and opnons contaned n ths document and/or arsng from any use or performance of ths document or ts contents or otherwse arsng n connecton wth ths document. Any opnons, forecasts or estmates contaned heren consttute a hgh-level nformaton statement only vald as at the date of ts release. There can be no assurance that the evoluton of the nformaton contaned heren and/or any future events wll be consstent wth such opnons, forecasts or estmates. Any nformaton heren s at any tme subject to change, update or amendment subsequently to the date of ths document, wth no undertakng by ECPI Group Companes to notfy such change, update or amendment. Ths document s not, nor may t be construed as to consttute a recommendaton to make any knd of nvestment decson or an offer for sale or subscrpton of or a solctaton of any offer to buy or subscrbe for any fnancal nstrument. Accordngly, ths document may not be used as a solctaton or an offer for sale or subscrpton, and any solctaton or offer shall be made only n accordance wth all applcable laws and regulaton, ncludng, whenever applcable, the flng of a prospectus wth the relevant authortes. ECPI Group Companes are not fnancal advsors subject to specal authorzaton and thus do not provde formal fnancal advce n the area of nvestment nor perform any asset management actvty. ECPI Group Companes recommend to potental nvestors wshng to be provded wth formal fnancal advce n the area of nvestment to contact a fnancal advsor duly authorzed by the competent regulatory authorty of ts country. ECPI Group Companes publsh researches on a regular bass. Ths publcaton has been prepared on behalf of ECPI Group Companes solely for nformaton purposes. All the nformaton contaned heren s copyrghted n the name of ECPI Group Companes, and none of such nformaton may be coped or otherwse reproduced, except for personal use only, further transmtted, transferred, publshed, dssemnated, redstrbuted or resold, n whole or n part, n any form or manner or by any means whatsoever, by any person wthout ECPI Group Companes pror wrtten consent.