FTSE Russell latest to alter ESG index methodology

Index house FTSE Russell is to exclude companies without ESG scores from its FTSE All-Share ex Investment Trusts ESG Climate Select Index.

The shift will occur on 17 March.

Revealed in a shareholder notice issued by Invesco, the company said the change would see the removal of companies with a combined weight of less than 1% of the reference index.

The asset manager also confirmed this change would impact its Article 8 €107.9 million FTSE All Share ESG Climate Ucits ETF (FASE).

This change coincides with FTSE Russell implementing its exclusion policy on the index, which covers controversial weapons, tobacco, adult entertainment, gambling, cannabis, arctic oil and gas exploration and oil sand, thermal coal and nuclear power.

The index is reviewed quarterly in March, June, September and December.

New requirements under the Sustainable Finance Disclosure Regulation (SFDR) have forced index providers to tighten several policies and metrics.

Invesco was previously forced to adjust its ESG ETF line-up after index provider Solactive shifted its methodology to comply with SFDR changes.

Last month, changes to the MSCI index used by the DWS Xtrackers MSCI Europe Energy ESG Screen Ucits ETF (XSER) led to the German asset manager announcing the closure of the fund.

In a statement, DWS said it is “supportive of changes which enhance the sustainability features of ESG indices in general”, but changes to the index in question would result in a majority of constituents being removed.

The same month, MSCI opted to increase the ESG credentials of some indices – a move that impacted BlackRock’s $15 billion ESG screen ETF range.

In November 2022, BlackRock downgraded its entire Article 9 ETF line-up to Article 8 on the back of EU regulatory changes.

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