By focusing on the G, the Governance part of ESG, French asset manager BNP Paribas has issued an index-tracker certificate, which selects companies based on their G-force.
The index underlying the structured product is part of the new Solactive index series: the Solactive ISS Governance Indices, the first indices dedicatedly covering the Governance topic.
"In Europe, the idea of the incorporation of ESG factors in investors' portfolios is far more advanced than in North America, which mainly has to do with recent local political initiatives, e.g., of the European Parliament and also through public awareness driven by media-effective movements," commented Timo Pfeiffer, chief markets officer at Solactive.
"BNP Paribas' involvement with ESG and their focus on G incentivizes companies' governance behavior and motivates them to put more emphasis on maintaining a risk-management strategy. We are very pleased to act as BNP Paribas' partner to make ESG strategies available to the broader public."
The small index family houses two indices, the European-stock-centered Solactive ISS Europe Quality Governance Select 50 Index and the US-stocks-based Solactive ISS Quality Governance Index. The first utilises the Solactive Europe 600 Index as its underlying base universe, while the second selects its constituents from the Solactive GBS United States Large & Mid Cap Index and the Solactive GBS United States Small Cap Index.
In the initial stage, the selection process features a broad controversy screening, excluding companies with significant involvement in areas such as Tobacco, Military Equipment, and Gambling. The more sophisticated Governance Score consists of a multi-level process involving a proprietary scoring taking into account internal auditing, a company's board structure, shareholder rights, and compensation. The remaining stocks with the highest Governance Score will be included in the index composition. All ESG Data for this index family is provided exclusively by ISS ESG.
Additionally, the indices utilise Solactive's expertise in Factor integration as both the strategies use a low-volatility optimization, giving investors a more conservative risk-profile to protect them from potential market corrections.