DAX® sets a new benchmark for sustainable German equity portfolios, the so-called DAX 50 ESG. It reflects the price performance of the 50 largest and most liquid shares on the German market while incorporating Environmental, Social and Governance (short ESG) criteria.
The DAX can herewith provide investors with a new, and more sustainability-related index. According to the Deutsche Börse Group, the DAX 50 ESG has the potential to become the new standard for sustainable investments in Germany. But how does this index affect the German investment world? And how can businesses prepare for it?
DAX 50 ESG index’ most important characteristics at a glance
The index has three important and basic characteristics:
- The index is based on the HDAX® index, which comprises all companies included in the DAX®, MDAX® and TecDAX®
- All stocks must have passed standardized ESG screens related to Global Compact Principles
- Companies involved in the trade or production of controversial weapons, tobacco production, steam coal and nuclear energy are categorically excluded
The DAX 50 ESG therewith represents the largest companies with the highest turnovers that have a comparably good performance based on their ESG criteria. Accodingly, the index incorporates three main aspects of businesses, namely their market capitalisation, order book volume and the Sustainalytics’ ESG score. The top 50 stocks for the index are then selected from this list, whereas the list is renewed every three months.
What you should know about DAX 50 ESG
Sustainalytics has been providing ESG research for 25 years, and now builds a basic component of the DAX 50 ESG. Our world is in a transitional phase towards a more sustainable economy. Appropriate index solutions do their part in driving market actors to a more sustainable financial sector. However, one will find mainly old familiar names in the DAX 50 ESG index, such as Bayer, Allianz, SAP, Linde, Siemens, BASF or Adidas.
Critique of DAX 50 ESG
On the one hand, the sustainability index is another important element in drawing the attention of the economy to the issue of sustainability. On the other hand, the index simply implements a list assembled by Sustainalytics.
According to ESG expert Volker Weber, the Deutsche Börse could have taken a more courageous step towards responsible investing. Especially because Germany aims at becoming a leading location for sustainable finance.
If Deutsche Börse was serious about sustainable finance, it would have acted much earlier and more decisively. For example, with its own stock market segment for which companies would have to qualify in terms of their transformation performance and reporting standards.
Bias of ESG ratings
One should also be aware that “individual agencies’ ESG ratings can vary dramatically”. An individual company can have greatly divergent ratings from different ESG agencies simultaneously.
These divergent results arise e.g. due to differences in methodologies, different weightings of indicators or subjective interpretations. There are also biases occuring due to company size, differences in industries or the location of corporations. Relying on the results of only one ESG agency, namely Sustainalytics, therefore inevitably creates a biased index.
How can companies prepare for a surging demand in ESG information?
One of the most basic ways to provide investors, customers and other stakeholders with ESG information is through a corporate carbon footprint. The calculation of carbon footprints is becoming the standard for an increasing number of industries.
A corporate CO2 balance is increasingly requested by customers and sometimes even plays a role when placing orders. In addition to meeting customer requirements, a carbon footprint can help to identify ecological weaknesses and drivers of emissions. It is the first and most basic step towards reducing harmful environmental impacts.
Since 1999, DFGE experts have been providing support in the calculation of greenhouse gas balances for companies or individual products. DFGE’s top-down approach enables a quick and cost-effective determination of greenhouse gas emissions.
We are happy to help you in this area – simply contact us by email at firstname.lastname@example.org or by phone at 08192 99733 20.