To summarise, a targeted list of relevant keywords chosen by thematic experts and MSCI’s applied research team is further enriched and broadened using cutting edge AI. These expanded keywords are used to identify a broad universe of eligible companies. And only those companies with at the very least 25% of their revenues attributable to the theme are selected. But we do not stop there…
At Lyxor, we recognise that large-scale responsible investing will be instrumental in building a more sustainable world. With a growing focus on sustainability criteria in investor portfolios – especially in a context of a real climate emergency – we decided to include an ESG filter in the index construction. It focuses on three ESG criteria:
UN Global Compact Violators, and/or companies involved in the following business activities are excluded from the selected universe: Controversial Weapons, Nuclear Weapons, Civilian Firearms, Tobacco, Thermal Coal and Oil Sands.
Based on MSCI’s ESG Controversies Methodology, companies with an ESG Controversy Score of 0 (‘Red Flag’ companies) are excluded, as are companies with a missing controversy score.
Companies with an MSCI ESG rating of CCC – the worst possible score – are excluded, as are companies with a missing rating.
Once the ESG exclusions have been applied, and standard size and liquidity filters have been taken into account, the top 50% stocks as measured by their relevance scored are selected and equal-weighted, before moving on to the final step.
Finally, we make sure our funds give higher weights to committed businesses with a track record of growing sales revenue, using capital efficiently, and investing for the future.
That’s why the final step of the process scores the remaining stocks according to three fundamental criteria:
Each stock is then given a composite score – specifically, a standardised Z-score – which determines its final weight in the index.
