FTSE Russell has launched the FTSE/JSE Responsible Investment Series in South Africa, with the index reflecting an expanded partnership between the index provider and the Johannesburg Stock Exchange (JSE), announced earlier this year.
There are more than 400 products featuring FTSE/JSE benchmarks across jurisdictions including the FTSE/JSE Africa Gold Mining Index, FTSE/JSE Africa Top 40 Index, FTSE/JSE Top 40 Index - USD, and FTSE/JSE Top 40 Tradeable Index, of which 71 are still live products, according to SRP data.
“We have seen a spectacular rise in demand and interest from investors around Environmental, Social and Governance (ESG) considerations,” said David Harris (pictured), head of ESG at FTSE Russell. “The main interest comes from developed markets, but we are also seeing increased demand from emerging markets. South Africa is leading other emerging markets in this area, with a number of recent developments that focus on ESG issues, including regulation (Code for Responsible Investing in South Africa -Crisa), which is driving significant activity from both firms and the investment community.”
There are 30 products featuring FTSE4Good indices, including the FTSE4Good Environmental Leaders Europe 40, FTSE4Good Europe 50, FTSE4Good Global 100, all of which have matured except an open-end turbo certificate offered by UBS in the German market, according to SRP data.
The indices respond to new regulation (Regulation 28 of the Pension Funds Act) in South Africa containing prudential guidelines for retirement fund investments which highlights the importance of managing risks and opportunities related to the ESG performance of investments across all asset classes, and requires retirement funds’ investment policy statements to indicate how they intend to apply and deal with ESG criteria and disclosures.
The new index series will initially comprise the FTSE/JSE Responsible Investment Benchmark and a Top 30 Index, containing the top 30 companies as ranked by the FTSE ESG Ratings. “FTSE Russell has been working with the JSE to create some dedicated responsible indices for this market, which we hope will be used to develop investment products,” said Harris. “The FTSE/JSE Responsible Investment Benchmark is aimed at investors seeking to reduce their exposure to companies that are not managing ESG risks very well; while the Top 30 Index focuses on leading firms in the ESG segment and it’s targeted at investors who want to get exposure to top rated ESG stocks. This is just a first step as we will be working with the JSE to consult the market and develop further benchmarks.”
FTSE Russell and JSE have seen a significant increase in the number of institutional investors wanting to integrate ESG considerations into their investments, said Harris.
The JSE was the first emerging market and the first stock exchange to launch a sustainability index. Launched in 2004, the SRI Index remains the JSE’s flagship sustainability initiative, one which has contributed significantly to the local sustainability agenda and provides investors with a broad-based assessment of corporate policies and practices against a range of ESG indicators. “The new indexes will replace JSE’s existing SRI index, which was quite successful in engaging companies but has had less of a capital markets impact,” said John Jarrett, deputy head of FTSE Russell ESG. “We will be using the FTSE ESG Ratings as the methodology for the new index series.”