State Street Global Advisors has partnered with MSCI to change the index tracked by its international equities fund for a greater focus on ESG and lowered carbon emissions.
According to a statement by the asset manager, the State Street Low Carbon ESG International Equities Index Trust will track a new benchmark called the MSCI World ex Australia Select ESG Low Carbon Integrated Index.
It marks a departure from the index it used to track, which only screened out tobacco and controversial weapons.
The new index is one which, “relative to the MSCI World ex Australia index, reduces carbon emissions and reserves intensity by 50 percent, as well as targeting a 20 percent improvement in its overall ESG profile,” the statement said.
It allocates higher weightings to companies with better ESG profiles and also excludes nuclear weapons and ‘red flagged’ stocks on top of excluding tobacco and controversial weapons.
According to the statement, ‘red flagged stocks’ refers to those that don’t align with international principles such as the UN Declaration of Human Rights.
Commenting on the announcement, SSGA head of global equity beta solutions Asia Pacific ex Japan Susan Darroch said institutional investors were “reassessing their portfolios” to ensure they were “on the right side” of the global shift towards low-carbon.
“While many larger institutions are of sufficient size to have customised, low carbon/ESG mandates, other institutions are looking to achieve the same exposure via a low-cost indexed fund.
“Our clients want the ESG outcome, but to avoid significant deviations in country and sector allocations when compared to the broader market index,” Ms Darroch said.
“There are less than a handful of existing options to do this locally.”
She added that SSGA was dedicated to engaging portfolio companies regarding issues such as climate change and gender equality that created value in the long term.
As of 31 December 2017, SSGA has US$2.78 trillion funds under management.