New Zealand asset manager Kiwi Wealth has collaborated with German index engineer Solactive to create a bespoke benchmark aligned with the asset manager’s own sustainability principles.
This new index – the Solactive Kiwi Global Markets Screened Index – took effect on 1 June and is now utilised as the benchmark for Kiwi Wealth’s Core Global Equity Fund. The index covers the largest c3,000 companies in Developed and Emerging Markets and excludes any company on the Kiwi Wealth exclusion list.
The key innovative feature of the Solactive Kiwi Global Markets Screened Index is its adaptation to Kiwi Wealth’s exclusion policy both now and in the future, making it simple to meet stakeholder demands without costly transitions. When used to benchmark Kiwi Wealth’s active strategies, it will allow portfolio managers to more accurately target active risk without the necessity to replace excluded companies with proxies. When used to benchmark a passive global equity fund, it will also facilitate benefits such as tax efficiency, low management costs, and sustainable proxy voting.
The new index is derived from Solactive’s flagship Global Benchmark Index Series (GBS). This series looks at 24 Developed and 26 Emerging Markets countries and covers more than 11,000 stocks throughout various size segments in terms of free-float market capitalisation. For the Solactive Kiwi Global Markets Screened Index, Solactive utilised its Solactive Global Markets Large and Mid Cap Index as a starting point, covering 85 per cent of the free-float market capitalisation from each of the 50 countries. The resulting index consists of c3,000 stocks.
From this starting universe, the index applies an ESG screening provided by Kiwi Wealth’s proprietary exclusion list. Companies involved with very damaging product lines such as tobacco and controversial weapons, or which exhibit highly unethical behaviour such as environmental or human rights abuses, have been screened and excluded. Kiwi Wealth also excludes, for example, companies involved in the hunting of whales and the processing of whale meat; companies producing or distributing palm oil, which do not demonstrate sufficient commitment to preventing deforestation through observing RSPO and source tracing standards; and companies using thermal coal or nuclear reactors to generate power without a credible transition plan to renewables.
Timo Pfeiffer, Chief Markets Officer at Solactive, says: “The joint index project with Kiwi Wealth is another prime example of ESG pervading both the investor’s demand-side and the asset manager’s supply side, proving once more that ESG is not a short-term trend but a progressive mindset increasingly ingrained in fundamental entities such as benchmarks. We are very happy that with Kiwi Wealth, we have found a trusted partner from Aotearoa New Zealand, who shares our vision and with whom we can bring yet another ESG solution to market, thereby helping our planet to become a more sustainable place for all.”
Steffan Berridge, quantitative and responsible investments strategist at Kiwi Wealth, says: “As part of our continuous development in Responsible Investment implementation, we are very excited to have completed this next milestone with Solactive, which is a German-based global leader in index engineering – its entry into Aotearoa New Zealand will move the domestic sector forward. The new benchmark has a number of advantages for Kiwi Wealth: ultimately, it will ensure our portfolios are benchmarked in a way that fully aligns with our exclusion list; it will enable us to implement RI with exclusions in a scalable, compliant way; and it will allow us to operate compliant indexed or passive funds that are low cost, tax-efficient and sustainably proxy voted.”
The rise of ESG can be attributed in part to investors’ mindfulness of the wider impact their activities have in shaping the future and to corporations’ acknowledgement that it is a vital factor in ensuring their long-term success. In this context, asset managers play a crucial role in facilitating this transition and are quickly increasing their efforts to implement their own corporate social responsibility principles into their investment processes. As part of this development, asset managers are also progressively demanding the integration of various sustainability criteria into their benchmark indices to ensure that, for example, their own CSR principles are reflected adequately within their overall investment approach.