Brazilian exchange BM&FBOVESPA will make it compulsory for the constituents of its Corporate Sustainability Index (ISE) to disclose their policies related to the UN Sustainable Development Goals (SDGs), which for the first time have been included among the criteria to participate in the index.
It comes as the SDGs are starting to appear on the agenda of investors; for example in September, a coalition of Dutch and Swedish pension fund managers pledged to use the SDGs as a framework for investment decisions.
The SDG inclusion will be a feature of an index that from its creation in 2005 to November 22 this year the ISE had gained +145.36%, against +94.11% for the main market index Ibovespa.
In addition, BM&FBOVESPA has recently announced that the full answers to the ESG-focused questionnaire, a listing requirement for companies, will be made publicly available including SDGs responses.
So far 34 Brazilian companies have been selected, of the 179 companies invited to apply for the 12th edition of the ISE portfolio, which will trade from January 2 2017 to January 5 2018.
Gustavo Pimentel, Managing Director of SITAWI, a Brazil-based ESG think-tank and research house (part of the Vigeo Eiris global network), told RI the listing process is similar to that of the Dow Jones Sustainability Index, although with some differences.Newcomers to the index are Santa Catarina-based electricity utility company Celesc, global energy producer Engie, and MRV Engenharia, a real estate company.
According to Pimentel, the index has a powerful effect on companies, as they use the questionnaire as a framework to develop ESG and sustainability policies in order to be eligible each year.
However, BM&FBOVESPA’s sustainability index presents both advantages and disadvantages for investors, Pimentel said.
“On the one hand it is a blessing because it helps differentiate good and bad companies in ESG terms; on the other hand it is a curse because a lot of investors end up relying exclusively on the index, rather than developing additional ESG integration frameworks.”
Assurance on the assessment process of the index has been provided since 2012. Professional services firm KPMG has carried out the assurance work on the 2017 portfolio.
The assurance doesn’t cover the material answers given by companies but rather the procedural and technical aspects of it, Pimentel explained. Link