Singapore Exchange (SGX) has launched the SGX Sustainability Indices, a suite of equity indices comprising SGX-listed stocks introduced by SGX Index Edge the exchange's custom index service launched at the end of 2015 targeted at structured products issuers and asset managers in the region, as well as to profile key segments of its securities market and deliver bespoke calculation capabilities that will enable clients to build tailored indices.
The SGX Sustainability Indices suite is made up of four new indices including the flagship SGX Sustainability Leaders Index, which tracks SGX-listed companies that are considered to be clear front-runners in ESG standards when compared to their peers. In addition to meeting the necessary ESG requirements, companies must also meet minimum liquidity requirement in order to qualify for inclusion.
According to the 2014 Global Sustainable Investment Review, Asia’s sustainable investment assets increased 32% from 2012 to US$53bn at the beginning of 2014, with Singapore and Indonesia seeing the fastest growth in sustainable investments, said Simon Karaban (pictured), head of index business at SGX, adding that the most commonly adopted sustainable investment strategies in Asia are ESG integration, "which has resulted in a growing demand for analytical ESG-benchmarking tools".
"ESG indices can be used by wealth and asset managers to identify companies that are leading on ESG credentials for investors considering ESG issues within their investment decisions," said Karaban. "The launch of SGX Sustainability Indices is a key effort on our part in enhancing ESG disclosure, by providing an avenue for investors to make more informed investment decisions.”
Investors across the globe are placing increasing importance on ESG, resulting in significant growth of AUM allocated to ESG strategies and growing demand for transparent benchmarking tools, according to Loh Boon Chye, chief executive of SGX. SGX Sustainability Indices provide a transparent avenue through which investors can assess the sustainability practices of SGX-listed companies and identify ESG leaders in Singapore," said Chye, in a statement. "They will also help to further profile SGX-listed companies with strong relevant credentials among a growing pool of ESG-aware international investors."
The introduction of the SGX Sustainability Index suite complements SGX's existing efforts to enhance disclosure and access to sustainability information, including the introduction of sustainability reporting for listed companies on a "comply or explain" basis.
With the new family of indices, SGX is pushing the integration of ESG into the investment process targeting long-term investors while requesting companies to rise to the challenge of providing transparency around the key material risks to the sustainability of their business models.
SGX's partner, Sustainalytics, provided the environmental, social and governance (ESG) research and ratings for SGX-listed companies, and the ratings underpinning the indices.
Michael Jantzi, chief executive of Sustainalytics, said that it is expected that as a result of SGX's new family of Indices, "increasing numbers of SGX-listed companies will enhance their disclosure around ESG issues, enabling investors to make more informed decisions"
SGX entered the index market in Q4 2015 with a custom index service aimed at providing an alternative to traditional market cap weighted indices that have seen a decline in activity and weakened investor appetite as a result of market volatility. Shortly after the Singapore exchange launched its first series of equity thematic indices providing exposure to four key segments of the securities market in Singapore (real estate, healthcare, minerals, oil & gas and maritime & offshore sectors).
SGX Index Edge is led by Simon Karaban, head of index business at SGX, who is also working in the development of new customised indices for structured products issuers and exploring the possibility to act as an index sponsor with investment banks or as a calculation agent for proprietary indices created by banks or product providers.
The exchange reported last week that turnover of structured warrants reached SGD53m (US$38.5m), bringing the average daily structured warrants turnover for the month to date to SGD32m against SGD23m recorded in April, which represents a two-year record.
(This update contains comments from Simon Karaban, head of the index business at SGX).
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