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Aligning values with investment choices

By: Tony Campos, director, ESG product management

The digital age has brought increased transparency and scrutiny to the way companies do business, giving investors a clearer view into company practices and sources of revenue. This has led to increased demand for tools that help investors align their values with their portfolios by selecting companies based on their impact on society and the environment. FTSE Russell, for example, recently launched a values-aligned index series, called the FTSE Global Choice Index Series, which is used by Vanguard in the US and Australia as the basis for new ETFs.

In order to effectively deliver values-aligned investment solutions, you have to start by translating a broad and relevant set of environmental, social and governance (ESG) issues into definable, measurable characteristics of a company. Indexes are ideal tools for this kind of ESG application, as they provide a rules-based, transparent method for defining and applying investor preferences. As such, ESG indexes have become a robust basis for investment products such as ETFs. 

While ESG screens are a good starting point for values-aligned investing, it is important to distinguish between the environmental and social impacts of a company’s products as well as its conduct. Our launch of the FTSE Global Choice Index Series aims to address both product and conduct ESG impacts—this series includes the FTSE Global All Cap ex US Choice Index, the FTSE US All Cap Choice Index and the FTSE Developed ex Australia ex Non-Renewable Energy/Vice Products/Weapons Index. In addition to the standard index family, clients can construct bespoke “Choice” indexes based on particular subsets of the screens that align with their values and sustainable investment objectives.

The index series excludes products from Non-Renewable Energy, Vice Products and Weapons categories:

The FTSE Global Choice Index Series then applies screens based on controversial company conduct and diversity practices. For example, companies with a history of controversy surrounding corruption, human rights or labor practices are excluded—as are companies without strong board diversity or equal opportunity practices.

There are many drivers of the increase in demand for values-aligned investment solutions, but one is certainly demographic changes and corresponding shifts in consumer preferences towards products that reflect the values of the individual. If the trend continues on its trajectory, we expect the FTSE Global Choice Index Series to grow and evolve in response. This can ensure investors have the tools they need to express their values in their portfolios with a thorough and thoughtful approach.   



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