In their latest collaboration with the Inter-American Development Bank (IDB), S-Network Global Indexes, a firm that supports socially responsible investment publishing best-practice benchmark indexes in collaboration with Thomson Reuters, has created the IDB-IIC Latin America Corporate Sustainability Index (IndexAmericas).
The methodology, developed by IDB/IIC, is based on 172 ESG indicators including 15 specific to the Latin America and Caribbean region. The ESG data is powered by Thomson Reuters Global ESG Research. S-Network provided methodology verification and the ranking calculation and IndexAmericas will be recalculated and reconstituted semi-annually by S-Network with oversight by the IndexAmericas Committee.
Gregg Sgambati, Head of ESG Solutions at S-Network Global Indexes, explains that the IndexAmericas is not a financial index, published on an exchange, but a next step in creating such an index.
“All involved feel it’s an obvious next step,” Sgambati says. “The driver comes from the IDB and their desire to encourage a greater amount of sustainable behaviour for companies in the Latin American region, reflecting an approach towards shared value, which does good for the company but also has an impact for the region.”
Although the new index is based on financial information, its ultimate methodology is a collaborative effort that makes it an index that reflects a ranking related to the region rather than a general world ranking.
“The index does not have any financial stock price information so it wouldn’t be used by investors at this point,” Sgambati says. “However, when you have a company that has achieved the status and recognition of a ranking, which we believe this is, then it does have some value that investors might consider.”
The aim is to encourage companies to take steps towards greater sustainability and shared value in the region.
The IDB finances large development projects in the region and for the most part works with corporations as part of the system of bringing funds to the regions. Sgambati explains that their mission is to return a profit but also to have that impact on the communities in which it operates.
“The companies in the ranking are achieving potential status and recognition and that’s important to their stakeholders,” Sgambati explains. “And in the aggregate, it’s good ESG and corporate social responsibility and good efforts do have financial benefits.”
Overall these companies are acting strategically in these ways and see lower costs of capital and more interest in investments by large pension funds.
Sgambati concludes: “Ultimately I think the way to characterise this is that investors today are looking for ways to get exposure in emerging markets and they are concerned about sustainable values. It’s natural to believe, with today’s desire for ETFs as an investment vehicle, that it can be a potential product for the future.”
