ISE adopts the ‘positive screening’ for selecting the companies (there is no automatic exclusion), in order to give opportunity to all companies to be included in the portfolio if they improve their sustainability practices. This police meets one of ISE’s objectives, which is to stimulate the good practices in the Brazilian market.
Nevertheless, in the questionnaire there are questions which attribute a negative weight if the company’s product is prejudicial to health, the environment, etc. (in the dimension “Nature of the Product”).
In order to evaluate the performance of BM&FBOVESPA listed companies about their sustainability aspects, GVCes designed a questionnaire to verify the performance of the companies which issued the 150 most liquid stocks (the eligible universe). The questionnaire considers the “triple bottom line” concept – an integrated analysis of environmental, social and economical aspects – as well as three more principles: a) general criteria (which inquires, for example, the company’s commitment to global compacts and if the company publishes social balances); b) nature of the product criteria (which inquires if the company’s product causes damages and risks to consumers health, among other issues); and c) corporate governance criteria.
The fulfilling of the questionnaire is voluntary, the questions are objective and the company must send specific documents to corroborate its answers.
The companies’ answers will be analyzed by a statistical tool called “cluster analysis”, which identifies groups of companies with similar performance and points the group with better general performance. The companies included in this group will compose ISE portfolio (which will have a maximum of 40 companies), after approval of the Board.
The eligible companies must have minimum liquidity levels, that is, their shares must be included among the 150 most liquid ones and they must have trading session presence of more than 50% considering the last twelve months.
ISE is a total return index, and is weighted by the free float of the component stock. Moreover, there is a 25% limit for the participation of one company in the portfolio.
The index is calculated in real time, and its portfolio is daily disclosed in BM&FBOVESPA’s website. It is rebalanced annually, in which occasion the companies are re-evaluated in relation to their sustainability levels. The companies that no longer meet the sustainability requirements and which are no longer among the “best in sustainability” will be excluded from the portfolio.
GVCes – Centro de Estudos em Sustentabilidade da EAESP/FGV (Center for Sustainability Studies)