Larger constituents in ESG Index outperformed industry peers.
Mumbai, June 22
It is often believed that companies that are particular about their environmental social and corporate governance practices cannot be fetching very good returns for their investors.
But the fortunes of the S&P ESG (environmental, social and corporate governance) India Index show otherwise. This index returned 140 per cent in calendar 2009 almost double the 75.8 per cent plus return for the C&P CNX Nifty, said Ms Koel Ghosh, Director of Business Development (South Asia), S&P Indices.
The S&P ESG India Index saw its inception in January 2008. It is not a traded index but a benchmark one, and is intended to offer investors exposure to “a liquid and tradeable index of 50 of the best performing stocks in the Indian market as measured by environmental, social and governance parameters.”
“We are trying to create a case where probably pension funds start looking at it because it creates a filter for a very conscious set of people (who have strong social and environmental views). In the last one year it has significantly outperformed the Nifty,” said Ms Ghosh.
“A number of Indian and foreign institutions have found that this kind of index is pretty interesting,” she said. “I think there is a growing awareness of sustainability and investors are becoming more and more conscious of this. Asset managers are getting very aware of this now, they can subscribe to the index, build products and portfolios around it.”
A comparative study done by S&P to promote the index shows that each of the top 10 holdings of the ESG India index returned more than 140 per cent in 2009, while three posted returns of more than 340 per cent. The largest constituents in the ESG Index also generally outperformed their industry peers by a wide margin, said Ms Ghosh, quoting from the study. Nine of the top 10 constituents in it outpaced their industry index by an average of 94.2 per cent, while in the Nifty the corresponding figure is 8 per cent.
The ESG India was sponsored by International Financial Corporation and developed by S&P, Crisil and KLD (an authority on social research and indices for institutional investors).
The index constituents are derived from the top 500 Indian companies by market capitialisation listed on NSE. It uses a methodology for quantifying a company's ESG practices and creating a scoring system. To this a qualitative score is overlayed, this score depending on information sources such as media reports, Web site publications and CSR filings. A composite score is generated from these two.