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STOXX ESG Impact Indices – A Smarter Way To Increase Sustainability

Jul. 19, 2016

Speaker : Dr. Jan-Carl Plagge and Christoph Gackstatter

Jul. 19, 2016 Speaker : Dr. Jan-Carl Plagge and Christoph Gackstatter

The STOXX ESG Impact Indices offer investors an innovative way to increase the exposure to ESG-related key performance indicators (KPIs) relative to their benchmarks.

While existing approaches mostly focus on increasing ESG exposure, often with the secondary aim of staying close to the risk and return characteristics of those of a benchmark, STOXX ESG Impact Indices go one step further and focus on a pre-defined set of KPIs that are found to reduce volatility on a single stock level.

Thus, STOXX ESG Impact Indices are designed to have an “impact” on three dimensions:

 - they impact, i.e. increase, the exposure to ESG-related indicators of the resulting index relative to that of the benchmark,

 - they change the risk-characteristics of the index by focusing on those KPIs that tend to have a risk-reducing impact on a single stock level,

 - as part of the entirety of ESG-related investments, they aim at incentivizing companies to improve their business practices in order to comply with international      standards and to be considered for index inclusion.

The empirical analysis shows that increasing the exposure to the selected ESG-related KPIs causes the indices to have a significant negative exposure to the volatility factor. This exposure explains the indices’ historical outperformance compared to that of their benchmarks.

 

Read: STOXX ESG Impact Indices – A Smarter Way To Increase Sustainability

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