Skip to content

Search

Viac Academy

Selection process sustainable strategies

The selection process is implemented differently depending on the fund provider. At VIAC, we use sustainable components from Credit Suisse, UBS, iShares and Swisscanto (ZKB). In the following article, the selection process is described for an implementation with the mainly used CS index components. The Swisscanto funds – which are also used in the base strategies – use their own sustainability rating from ZKB, but the approach is basically comparable.

For the CS fund provider, the approach also differs between foreign and Swiss equities.

Foreign equities – MSCI ESG Leaders Index

MSCI ESG Leaders Indices are free float-adjusted indices weighted by market capitalization. They track the performance of companies that have a good environmental, social and governance (ESG) rating compared to their industry peers.

The index construction is defined as follows:

1. Selection Universe

The selection universe is defined by components of the respective MSCI base index (so for the MSCI USA ESG Leaders Index these are all companies of the MSCI USA Index etc.).

2. ESG Rating

All companies are analyzed and rated according to ESG criteria. The resulting ESG rating ranges from CCC to AAA. To be included in the MSCI ESG Leaders Index, companies must achieve an ESG rating of at least BB.

3. Controversies

MSCI ESG Leaders indices also take into account the MSCI ESG Controversies Score. This defines whether a company has been or is subject to controversies (e.g. human rights violations or causing serious environmental damage). Companies must have a score of three or higher (on a ten-point scale) to be included in the index.

4. Exclusion Criteria

For each company, it is measured whether there is significant involvement in controversial activities. If the business activities are subject to predefined conditions, the respective company is excluded. The following criteria are applied:

Controversial Weapons

  • All companies with links to controversial weapons (cluster munitions, landmines, depleted uranium weapons, biological/chemical weapons, blinding lasers, non-detectable fragments, and incendiary weapons.

Nuclear weapons

  • All companies that manufacture nuclear warheads and/or whole nuclear missiles.
  • All companies that manufacture components designed for exclusive use in nuclear weapons or that have been designed or significantly modified exclusively for use in nuclear weapons (warheads and missiles).
  • All companies that manufacture or assemble carrier platforms designed or significantly modified for exclusive use in nuclear weapons.
  • All companies that provide support services related to nuclear weapons.
  • All companies that manufacture components that were not developed or not substantially modified for exclusive use in nuclear weapons (warheads and missiles), but that can be used in nuclear weapons.
  • All companies that manufacture or assemble delivery platforms that were not designed or not significantly modified for exclusive use in nuclear weapons, but have the capability to deliver nuclear weapons.
  • All companies that manufacture components for nuclear-exclusive delivery systems.

Civilian firearms

  • All companies that derive 5% or more of their sales from the production of firearms and small arms ammunition for the civilian market. This does not include companies that supply the military, government, and law enforcement.
  • All companies that derive 15% or more of total revenue from the manufacture and distribution (wholesale or retail) of firearms or small arms ammunition for civilian use.

Tobacco products

  • All companies that derive 5% or more of their revenue from the manufacture of tobacco products.
  • All companies that derive 15% or more of their total revenue from the manufacture, distribution, retail, supply, and licensing of tobacco products.

Alcohol

  • All companies that derive 10% or more of their revenue from the manufacture of alcohol-related products.

Conventional Weapons

  • All companies that derive 10% or more of their revenue from the production of conventional weapons and components.

Gambling

  • All companies that derive 10% or more of their revenue from the ownership or operation of gambling-related business activities.

Nuclear energy

  • All companies that derive 10% or more of their total revenue from nuclear power activities.

Fossil fuel extraction

  • All companies that derive 5% or more of total revenues (either reported or estimated) from coal mining (thermal coal including lignite, bituminous coal, anthracite coal and steam coal) and unconventional oil and gas extraction (oil sands, oil shale, shale gas, shale oil, coal seam gas and coal seam methane).

Coal thermal power

  • All companies that derive 5% or more of their revenue (either reported or estimated) from thermal coal-fired power generation.

5. Best-in-Class

Finally, the best-in-class approach results in those companies with the best ESG rating in each sector being considered first and included in the index. This happens until 50% of the market capitalization of the respective sector is reached. As a result, the ESG Leaders Index achieves a better average rating at the level of individual criteria such as environmental, social and governance compared to its base index. This applies analogously to the final ESG rating of the sustainable index: for example, the MSCI World ex CH ESG Leaders Index has an ESG rating of AA, while the underlying index has a rating of A.

Swiss equities – SPI ESG

The Swiss equities portion follows the Swiss Performance Index ESG launched by SIX. Stock selection here is based on Inrate’s 12-level ESG Impact Rating, with the scale ranging from D- to A+. The SPI ESG excludes companies with an ESG Impact Rating lower than C+. It also excludes companies that generate more than 5% of their sales in a critical sector (including alcohol, defense, gambling, genetic engineering, nuclear energy, coal, oil sands and tobacco). Likewise, no investments are made in companies recommended for exclusion by the Swiss Association for Responsible Investment (SVVK).

Emission intensity and voting rights

Moreover, the construction approach based on sustainability criteria also significantly reduces the emission intensity in tons of CO2 equivalent compared to the base index. The fund provider also maintains an active and ongoing dialog with the companies as a shareholder with regard to sustainability issues. In addition, voting rights are also exercised with due regard to sustainability criteria.

PS: Incidentally, all the strategies already have a sustainable impact. This is because, on the one hand, we do without the pointless mailing of millions of pages of paper and, on the other hand, we have a tree planted for every VIAC customer. This already amounts to over 80,000 trees, with which we are helping to slow down climate change and achieving a real impact: Day by day.