Sustainability is a very prominent issue at the moment – and that is the case in the investment sector too. Companies which are making progress in areas such as CO2 savings, recycling, social standards and management will be able to derive more benefits than ever from their activities – benefits that will also be reflected on their balance sheets and in their share prices. Nevertheless, there has been a certain discrepancy to date between the lip service that is paid and the real, measurable achievements of companies when it comes to environmental, social and governance matters (often referred to as ESG). Furthermore, the conventional ESG ratings, i.e. the scores achieved by a particular company for its performances in ESG aspects, are distinctly fuzzy in many cases or contain many artificial future assumptions with a very limited grounding in reality. That often makes it harder for investors to identify the right sustainable businesses.
These challenges have been picked up by Switzerland-based Global Green Xchange AG. Following extensive preparatory work, GGX has developed an innovative rating standard that allows the sustainability of companies to be quantified transparently and verifiably. In doing so the ESG raters at GGX have done real pioneering work. The effective achievements of a company in individual reporting periods are thus compared and their dynamic development (improved, the same, worse) is scored from 0 to 10. The score boundaries are also clearly labelled, giving investors the greatest possible precision in interpretation.
The achievements of the relevant company are measured on the basis of 17 specific, clearly defined data points. What makes the rating the only one of its kind in the world is the high transparency of the weightings given to the factors. That is because the ESG ratings of GGX place particular emphasis on the credibility and Swiss quality of the underlying raw data. GGX also rates companies proactively, without receiving any payment or sponsorship from the company being rated. This, too, underlines the neutrality of GGX’s ESG ratings.
The GGX research team used this innovative standard as a basis for launching the GGX Sustainable Dynamic Leaders Index family, laying the foundation for investable financial products. In terms of region, the companies qualifying for the index universe of the European variant will have a primary listing in Switzerland, the EU, Great Britain or the other EFTA states (Liechtenstein, Iceland and Norway). The minimum market capitalisation must be one billion euros (or the equivalent). The two sectors of armaments and mining/coal are barred from inclusion in the index. The GGX ESG rating mentioned above must be 4.0 or better.
All companies which have a GGX ESG rating greater than 4.0 have in principle qualified for inclusion in the index for their progressive achievements in environmental, social and governance aspects. The next step is the qualitative selection, which is carried out by GGX’s research team on a discretionary basis, taking account of balance sheet strength and overall attractiveness for investors. The index as it stands at the moment contains the 20 leading companies in Europe which qualify in terms of sustainability while also being a sound, attractive investment. The current selection includes, for instance, the leading wind turbine producer Vestas and the wind and hydro power manufacturer Ørsted, as well as the Mercedes-Benz Group, the Stellantis Group and Porsche Holding, the European driving forces behind e-mobility. ABB, Lonza and SwissRe have likewise qualified for the Sustainable Dynamic Leaders Europe Index, which means investors have the best possible marriage of two elements: ESG performance and financial attractiveness.