Scientific Beta to offer ESG option on all of its flagship multi-factor indices


Scientific Beta to offer ESG option on all of its flagship multi-factor indices

More than 35% of Scientific Beta's assets replicate ESG versions of its indices

Scientific Beta has announced that it is now providing an ESG option for all of its indices. The ESG option enables investors to benefit from the performance of Scientific Beta's High Factor Intensity (HFI) Multi-Beta Multi-Strategy (MBMS) indices while upholding ESG norms and materially reducing exposure to companies with high exposure to ESG risks.

The ESG option excludes companies that fall severely short of global standards of responsible business conduct, deprive shareholders of voting rights or are involved in activities that conflict with global ESG norms or their objectives (anti-personnel landmines and cluster munitions, tobacco manufacturing, coal). It also includes additional negative filters targeting companies facing critical controversies in the areas covered by the UN Global Compact, or involved in inhumane weapons or deriving significant revenues from tobacco distribution.

Scientific Beta's ESG incorporation approach is based on three principles:

  • Differentiating between non-financial objectives or constraints, which are primarily addressed by negative or positive filtering, and the search for financial performance, which relies on an academic consensus based on factors and diversification;
  • Treating the ESG policy as a fiduciary constraint and delivering on an ambitious non-financial mandate while maintaining high-factor intensity and good diversification of portfolios;
  • Offering an off-the-shelf ESG option for HFI MBMS indices while retaining the capacity for customisation.

Commenting on the launch of Scientific Beta's ESG option, Noël Amenc, CEO of Scientific Beta, said, "Scientific Beta's ESG incorporation philosophy centres on exclusions that are determined solely on ESG merits and demerits and applied as the first step of index construction. This approach respects the principles of ethical and socially responsible investors and, as a result, exclusions send clear signals to issuers and are straightforward to explain to stakeholders."

As part of its policy of transferring know-how to the industry, EDHEC-Risk Institute has set up Scientific Beta. Scientific Beta is an original initiative which aims to favour the adoption of the latest advances in smart beta design and implementation by the whole investment industry. Its academic origin provides the foundation for its strategy: offer, in the best economic conditions possible, the smart beta solutions that are most proven scientifically with full transparency of both the methods and the associated risks.
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