Nedbank Capital has launched South Africa’s first Green Index which serves as a benchmark for environmentally conscious investors.
The Index has the potential to become the industry standard in measuring performance of companies with environmentally sustainable business practices.
Nedbank’s commitment to environmental preservation is illustrated through this initiative which tracks the performance of companies selected on environmental criteria primarily including carbon and climate change risks and opportunities. The Nedbank Green Index is a strategic fit with Nedbank’s desire to be a leader in the sustainability space and a key contributor to the Green Economy. It will allow clients who share Nedbank’s aspirations in the Green space to demonstrate this in their investments.
Jacoleen Simpson, senior transactor at Nedbank Capital says ‚We are proud to be able to launch South Africa’s first Green Index which demonstrates our commitment as a bank to deliver innovative products in the green space. Furthermore, our work on the Nedbank Green Index has shown that taking the environment into account in investing can also make sense from a financial perspective. Investing responsibly does not have to come at a cost in performance for the investor.‚
The index is rules-based with a clear, transparent methodology based on objective and independent data. The index will be verified by an independent calculation agent on an ongoing basis with daily values published on data service providers such as I-net, Bloomberg and Reuters.
To ensure the objectivity of Nedbank’s Green Index, the Index is built on the Carbon Disclosure Project (‚CDP‚ ) database and the UN-register of Clean Development Mechanism (‚CDM‚ ) projects in South Africa. The CDP is an independent not-for-profit organisation, based in the United Kingdom, which holds the largest database of corporate climate change commitment and action in the world. The CDP has 551 institutional investors as signatories representing over $71 trillion in assets under management. CDM projects based in South Africa are also incorporated into the rules-based methodology as these represent demonstrable commitments from companies to reducing their carbon impact and growing the Green Economy.
The Index combines these environmental credentials, with liquidity screening criteria, to create an investable index. Unlike other South African indices currently available, it uses environmental along with liquidity criteria to select constituents and weights these constituents according to environmental performance. This distinguishes it from the JSE’s SRI Index which selects constituents based on environmental, social and governance criteria and thereafter weights constituents based on their market capitalisation.
The premise for the Index is that companies who are better positioned for a changing environment are better suited to sustain their future performance and should, over the long-run, outperform their peers. Back-testing of the Index has shown that the Index can outperform the market, as it has done for the past three years ‚ by more than 20%. While the performance of the Nedbank Green Index in relation to the market may vary in the future, what this demonstrates is that investing based on environmental criteria does not have to cost investors in performance. In a single stroke, investors can confidently invest for their own futures and that of our planet.
The Index will provide a platform for companies to show off their green credentials and hopefully the Index will encourage other companies to implement more environmentally-sustainable business practices.
At present, the Index can be freely utilised as a benchmark for environmentally-conscious investors and it can be directly invested in by local and international institutional investors through segregated portfolios managed by NedGroup Securities. Nedbank is also in the process of gaining the necessary approvals to list an Exchange-Traded Fund over the Nedbank Green Index, which will provide easy, low-cost access for retail and institutional investors. The ETF will be the second to be launched in the BettaBeta ETF series.
Simpson concludes, ‚By launching this Index, we hope to expand the investment landscape in South Africa for Green products and allow everyone to invest in the future, environmental as well as financial!‚
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