Euronext would like to consult on proposed changes to the methodology of the MIB ESG.
In light of strategic developments at Moody’s ESG, Euronext is analysing the option of updating the methodology of the Index to use data provided by Sustainalytics.
In addition there are further changes proposed in order to align the Index methodology with the ESMA guidelines on funds’ names using ESG or sustainability-related terms. Specifically int concerns the following two changes:
Furthermore in order to simplify the weighting methodology it is proposed to change towards an optimization method instead of the current approach for the weighting update.
If approved by Index Design, the changes to the methodology will become effective as of the March Review of the Index.
The following rule changes are proposed to be made to the MIB ESG in order to transition to Sustainalytics as a data provider. The proposal aims at replacing the current step in the methodology with the corresponding data point by Sustainalytics. It concerns changes to the:
The following change is proposed to the continuous eligibility screening:
Current Rule:
Companies with active critical controversies related to UNGC as determined by Moody’s ESG Solutions are not eligible for the index. Each critical controversy remains active for 2 years or until Moody’s ESG Solutions analysis flags it as inactive or downgrades the severity, whichever occurs first. A Company with an active critical controversy cannot be included in the index during this period. Reference date to assess the 2 years period corresponds to the first announcement date of the critical controversy identified by Moody’s ESG Solutions.
Proposed new Rule:
Companies that are assessed to be Non-Compliant with the UN Global Compact principles, UN Guiding Principles on Business and Human Rights (UNGPs), OECD Guidelines for Multinational Enterprises and ILO Conventions as determined by Sustainalytics are not eligible for inclusion in the index.
The following changes are proposed to the eligibility screening at reviews following the change to Sustainalytics as the data provider.
Current rule:
The index universe is screened on 2 sets of criteria: norm based (UNGC) and Activity exclusions.
Companies that breach any of the following thresholds are not eligible.
Exclusion type
Description
Revenues
Companies with any involvement in the production of tobacco.
Companies with revenues larger or equal to 10% derived from distribution of tobacco are excluded.
>0%
≥10%
Companies with any involvement in Thermal Coal Mining are excluded.
Companies with revenues larger or equal to 5% from Coal-fuelled power generation are excluded.
≥5%
Companies with revenues larger or equal to 5% derived from the production or sale of civilian firearms are excluded.
Companies with involvement type Full weapons system or Key parts in regards to munitions of the following weapon types, are excluded: anti-personnel landmines, cluster munitions, biological weapons, chemical weapons, blinding laser weapons, incendiary weapons, non-detectable fragments, depleted uranium, white phosphorus.
Proposed new rule:
The index universe is screened on 2 sets of criteria: norm based (Global Standards Screening) and Activity exclusions.
Global Standards Screening
Sustainalytics Field Id
Companies flagged "Non-compliant" are excluded
231112111799
Product involvement Screening
Companies that are involved in the following products, and related thresholds as assessed by Sustainalytics are not eligible:
Companies with any revenue involvement in the Production of Tobacco.
Companies with revenues larger or equal to 10% derived from Retail of Tobacco are excluded.
172911112999
172915112999
Companies with any revenue involvement in Thermal Coal Extraction are excluded.
Companies with revenues larger or equal to 5% from Thermal Coal Power Generation are excluded.
172811112999
172813112999
Companies with revenues larger or equal to 5% from Civilian customers (Assault weapons) are excluded.
Companies with revenues larger or equal to 5% from Civilian customers (Non- Assault weapons) are excluded.
171711112999
171721112999
Companies with specific involvement in tailor-made and essential controversial weapons are excluded.[1]
Companies with specific involvement in non-tailor-made or non-essential controversial weapons are excluded.
N/A
171611102999
171613102999
The following change will be made to the selection ranking rule:
The eligible Companies are ranked by decreasing order on the ESG score as assigned by Moody’s ESG Solutions. In case of an equal score the Company with the highest free float market capitalisation will rank higher.
Proposed Updated rule:
Companies within the Index Universe that fulfil the eligibility requirements are ranked based on the ESG risk rating as assessed by Sustainalytics, Companies with less ESG risk (lower risk rating) will rank higher. In case of equal ESG risk rating, the Company with the highest Free Float Market Capitalisation on the Review-Cut Off Date will rank higher.
[1] * This includes: Anti Personnel Mines; Biological and Chemical Weapons; Cluster Weapons; Depleted Uranium and White Phosphorus
In order to align the index to the fund naming criteria it is proposed to add two additional criteria to the eligibility screening at reviews based on Sustainalytics data:
Proposed updated exclusions:
Oil & Gas Production
Thermal Coal Power Generation-Revenue Percentage
Oil & Gas Generation-Revenue Percentage
Sum of both
≥50%
171025141199
171114141199
The method for ensuring compliance with the impact objectives will be adjusted such that it is achieved with an optimization of the weighting method.
The following changes will be made to the periodical weighting update
Capping Factor
A Capping Factor is calculated based on the Review Composition Announcement Date such that the Companies included in the index have a maximum weight of 10% and such that the index Weighted Average Carbon intensity is improved compared to the Index Universe.
Weighted Average Carbon Intensity (WACI) is defined as company-level Scope 1+2 last known emission divided by the revenues (same year), multiplied by each company’s weight in the index and then aggregated by summing.
Weighted Carbon Intensity (WACI) is defined as company-level Scope 1+2 last known emission divided by the revenues (same year), multiplied by each company’s weight in the index.
Should the WACI be left unimproved compared to the Index Universe, the weight of the Company with the worst WCI will be decreased (up to 30%) until the index WACI is below the Index Universe WACI. if the index WACI still be above the Index Universe WACI after this decrease, this process will be iterated with another Company. In case of several iterations, the 5 first will be applied to different Companies. After that, in case the index WACI is still above the Index Universe WACI, This iterative process continues with weight decrease eligibility reset after each 5 iterations.
The weight decrease in respect of the WACI will be expressed in the capping factor. The assessment of the WACI and new capping coefficients are based on the closing prices observed on the Review Composition Announcement Date.
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 such that the index Weighted Average Carbon intensity is improved compared to the Index Universe.
Weighted Carbon Intensity (WCI) is defined as company-level Scope 1+2 last known emission divided by the revenues (same year), multiplied by each company’s weight in the index.
A capping factor is calculated using an optimization method that satisfies the following objective function:
With:
The constraints imposed are the following (unchanged compared to current methodology):
Stakeholders will have till 31 December 2024 to react to the consultation. The new rules, if validated by Index Design, will be implemented as of the March 2025 Review of the Index.
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