Consultation CAC 40 ESG 2025

Background

Euronext would like to consult on proposed changes to the methodology of the CAC 40 ESG. Changes include: 

  • Modification of the Index Universe.
  • Adjustment of the eligibility screening steps to more closely align with the criteria set forth in ESMA’s guidelines on ESG fund naming conventions.
  • Introduction of a revised weighting methodology, employing an ESG-tilted approach designed to reflect the composition of the redefined Index Universe while maintaining consistency with the index's ESG objectives.

If approved by the Independent Supervisor the changes to the methodology will become effective as of the June Review of the Index. 

Proposed changes

Proposed change related to the Index starting universe 

The following changes are proposed to the Index Universe at reviews.

Current Index Universe

CAC Large 60 index

Proposed new Index Universe

CAC 40 index

Proposed change of the eligibility screening step. 

The following changes are proposed to the eligibility screening at reviews. 

Companies will no longer be excluded if they meet any of the below characteristics: 

  • If they are part of the worst 20% of companies based on the ESG score.
  • An involvement of at least 5% in coal-fuelled power generation
  • An involvement of at least 5% in civilian firearms 
  • An involvement in depleted uranium or white phosphorus 

Additionally, a change of threshold for the exclusion filter on coal-mining is proposed. 

Current Rule:

Companies that breach any of the following thresholds are not eligible: 

Exclusion typeDescriptionRevenues
UN Global Compact controversies
  • Companies flagged as “RED” (As defined in “2.2 Continuous eligibility screening”).
 -
Tobacco
  • Companies with any involvement in the production of tobacco.
  • Companies with maximum percentage of revenues derived from distribution of tobacco above 10% are excluded. 

>0%

 

≥10%

Thermal Coal
  • Companies with any involvement in Thermal Coal Mining are excluded.
  • Companies with maximum percentage of revenues from  Coal-fuelled power generation are excluded above 5%.

>0%

 

≥5%

Oil sands
  • Companies with any involvement in Oil Sands are excluded.
>0%
Arctic drilling
  • Companies with any involvement in arctic drilling are excluded.
>0%
Deep water drilling
  • Companies with any involvement in Deep water drilling are excluded.
>0%
Hydraulic fracturing
  • Companies with any involvement in hydraulic fracturing are excluded.
>0%
Shale Energy
  • Companies with any involvement in Shale Energy are excluded
 
Oil 
  • Companies that have a maximum turnover of 10% or more derived from Oil (exploration, extraction, refining , processing, distribution) activities are not eligible
≥10%
Gas
  • Companies that have a maximum turnover of 50% or more derived from Gas (exploration, extraction, refining , processing, distribution) activities are not eligible
≥50%
Fossil Fuel   Power generation
  • Companies that derive 50% or more of their turnover from fossil fuel (including oil & gas) power generation are not eligible
≥50%
Civilian firearms
  • Companies with maximum percentage of revenues derived from the production or sale of civilian firearms above 5% are excluded.
≥5%
Controversial Weapons

Companies flagged as “RED” or  “AMBER” as determined by ISS are excluded. 

 

The filter on controversial weapons from ISS cover the following weapons: 

biological weapons, chemical weapons,  incendiary weapons, depleted uranium, white phosphorus, Anti-Personnel Landmines, cluster munitions.

Proposed new rule: 

Companies that breach any of the following thresholds are not eligible: 

Exclusion typeDescriptionRevenues
UN Global Compact controversies
  • Companies flagged as “RED” (As defined in “2.2 Continuous eligibility screening”).
 -
Tobacco
  • Companies with any involvement in the production of tobacco.
  • Companies with maximum percentage of revenues derived from distribution of tobacco of 10% or more are excluded. 

>0%

 

≥10%

Oil 
  • Companies that have a maximum turnover of 10% or more derived from Oil (exploration, extraction, refining , processing, distribution) activities are not eligible
≥10%
Gas
  • Companies that have a maximum turnover of 50% or more derived from Gas (exploration, extraction, refining , processing, distribution) activities are not eligible
≥50%
Fossil Fuel   Power generation
  • Companies that derive 50% or more of their turnover from fossil fuel (including oil & gas) power generation are not eligible
≥50%
Thermal Coal mining
  • Companies that derive a maximum percentage of turnover of 1% or more derived from Thermal Coal Mining are excluded.
≥1%
Oil sands
  • Companies with any involvement in the production or exploration of fossil fuel from Oil Sands are excluded.
>0%
Arctic drilling
  • Companies with any involvement in the production or exploration of fossil fuel from arctic drilling 
>0%
Deep water drilling
  • Companies with any involvement in the production or exploration of fossil fuel from Deep water drilling are excluded.
>0%
Hydraulic fracturing
  • Companies with any involvement in the production or exploration of fossil fuel from hydraulic fracturing are excluded.
>0%
Shale Energy
  • Companies with any involvement in the production or exploration of fossil fuel from Shale Energy are excluded
 
Controversial Weapons

Companies flagged as “RED” or  “AMBER” as determined by ISS are excluded. 

 

The filter on controversial weapons from ISS cover the following weapons: Biological weapons, Chemical weapons,  Incendiary weapons, Anti-Personnel Landmines, Cluster munitions.

 

Proposed change to the selection ranking

The following changes are proposed for the selection of constituents: 

  • The components of the index will not be selected based on the ESG Performance score. All eligible companies will be selected in the index composition
  • A new process is proposed to address situations in which fewer than 35 companies meet the eligibility criteria. 

Current rule: 

The eligible Companies are ranked by decreasing order on the ESG Performance score as assigned by ISS-ESG. In case of an equal score the Company that is already included in the index ranks better. In case of equal ranking,  the Company with the highest free float market capitalization will rank higher.

At reviews, 40 Companies are selected. The 35 highest ranking Companies are automatically included in the initial selection. A buffer zone, consisting of  Companies ranked 36th to 45th is created. Current constituents of the index in the buffer zone have priority over Companies that currently do not form part of the CAC 40 ESG.

Proposed Updated rule: 

All eligible companies are selected in the composition of the index. 

If the pool of eligible companies contains fewer than 35 constituents, additional companies from the CAC Next 20 that meet the eligibility criteria will be added, in order of highest free-float market capitalization, until the total number of selected companies reaches 35.

Proposed changes to the weighting method

The Periodical weighting procedure will be adjusted in order to: 

  • Integrate an objective function that aims to maximize the weighted average ESG score of the index 
  • Take into account new threshold for the improvement of the Carbon intensity 
  • Take into account new constraints on the improvement of the ESG score and the maximum weight deviation compared to weights by Free float market capitalization 

Current rule:

Capping Factor

A Capping Factor is calculated based on the Review Weightings Announcement Date such that the Companies included in the index have a maximum weight of 10%, and the Index complies with the impact objectives with the following methodology. 

The CAC 40 ESG aims at improving the Green-to-Brown ratio as well as the Weighted Average Carbon Footprint compared to the Index Universe. Both criteria are evaluated by ISS-ESG Solutions.

Green-to-brown ratio is defined as Company level weighted aggregation of Company revenue percentage derived from products or services with significant or limited contribution to SDG 13 Climate Action, divided by Company level weighted aggregation of Company revenue percentage derived from products or services with significant or limited obstruction to SDG 13 Climate Action. The weight is equal to the Company’s weight in the index.

Weighted average Carbon Footprint is defined as Company-level Scope 1+2 emission weighted by each Company’s weight in the index and then aggregated by summing.

A capping factor is calculated using an optimization method that satisfies the following objective function: 

With:

  • = Weight of constituent i in the portfolio
  •   = Free Float Market Cap Weight of constituent i in the portfolio
  • = Number of constituents in the portfolio

The constraints imposed are the following (unchanged compared to current methodology):

  • All weights are positive and sum to 1
  • All weights are capped at 10%
  • A reduction in WACI relative to Parent index (Scope 1+2)
  • A reduction in Green to brown ratio relative to Parent index 

Proposed new rule:

Capping Factor

A Capping Factor is calculated based on the Review Weightings Announcement Date such that the Companies included in the index have a maximum weight of 10%, and the Index complies with the below constraints, whereby the weight is equal to the Company’s weight in the index:

  • The weighted average ESG score (using datapoint ESGRatingOverallNumeric from ISS-ESG) should be improved compared to the weighted average of a simulated portfolio consisting of the Index Universe minus the worst 20% of companies based on the ESG score.
  • The weighted average Carbon intensity should be reduced by at least 30% compared to the Index Universe. The Carbon Intensity is defined as Company-level Scope 1+2 emissions as defined by ISS-ESG, divided by the EVIC (Enterprise Value Including Cash). 
  • The weighted average Green to brown ratio should be improved compared the weighted average Green to brown ratio of the Index Universe. Green-to-brown ratio is defined at Company level weighted aggregation of Company revenue percentage derived from products or services with significant or limited contribution to SDG 13 Climate Action, divided by Company level weighted aggregation of Company revenue percentage derived from products or services with significant or limited obstruction to SDG 13 Climate Action, as defined by ISS-ESG. 
  • The maximum deviation of individual weights cannot exceed 2% compared to weights by Free float market capitalization capped at 10%  

A capping factor is calculated using an optimization method that aims to maximize the following objective function: 

With:

  • = Weight of constituent i in the portfolio
  •   = ESG score, as defined by ISS-ESG, of constituent i in the portfolio
  • = Number of constituents in the portfolio

The constraints imposed are the following:

  • All weights are positive and sum to 1
  • All weights are capped at 10%
  • A reduction in WACI (Weighted Average Carbon Intensity) relative to Index Universe by at least 30% 
  • An improvement of the Weighted Average ESG score compared to Weighted Average ESG score of the Index Universe minus 20% worst ESG scores 
  • An improvement in Green to brown ratio relative to Index Universe 
  • The maximum deviation of weights compared to weights by Free float market capitalization capped at 10% cannot exceed 2% 

Timeline of changes

Stakeholders will have till  25 April 2025 to react to the consultation. The new rules, if validated by Index Design and the Independent Supervisor of the Index, will be implemented as of the June 2025 Review of the Index.

Questions
Do you agree with the proposed change of Index Universe ?
Do you agree with the changes of Eligibility screening steps ?
Do you agree with the change of selection process ?
Do you agree with the proposed change of weighting procedure ?
Do you agree with the proposed maximum deviation of weights of 2% compared to weights by Free float market capitalization ?
Do you agree with the proposed timelines?
Contact details
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