Timmo Pfeiffer, Solactive

Solactive launches new Euro IG Corporate Index with ESG Integration developed by SD-M


Solactive has launched a new Euro IG Corporate Index, the Solactive Euro IG Corporate SD-KPIndex. incorporating ESG Integration developed by SD-M.

SD-M has developed a straightforward and robust ESG classification model focusing on three standardised material key performance indicators for respective industries and sectors.

The Solactive Euro IG Corporate SD-KPIndex builds upon the industry-wide used Solactive Euro IG Corporate Index that mirrors the performance of investment grade bonds denominated in EUR. The new index utilises its parent’s index market-cap based index universe as its starting point but furthermore over- and underweights its constituents in correspondence to the SD-KPIndex’s methodology, rendering the ESG incorporation a so-called ESG-integration approach: On selection day, index constituents are segmented in different quintiles based on SD-KPIntegration® Scoring.

The method assigns the top-20 per cent a 50 per cent overweight in the index, whereas the second twenty percent receive 25 per cent overweight, the medium quintile remains unchanged, and both the lower twenty percent quintiles receive an underweight of 25 per cent or 50 per cent respectively. SD-M’s proprietary SD-KPI Standard 2016-2021 consist of three industry-specific ESG-indicators, based on extensive research and developed with support from the German Federal Ministry of the Environment, global investors and analysts as well as the Sustainability Accounting Standards Board (SASB).

Solactive’s collaboration with SD-M comprises two more fixed income indices, including the Solactive USD IG Corporate SD-KPIndex for the USD corporate bond space as well as the Solactive GBP IG Corporate SD-KPIndex® for GBP denominated indexable corporate debt.

Timo Pfeiffer (pictured), Chief Markets Officer at Solactive, says: “As capital markets continue to realize the importance of integrating ESG metrics into portfolio construction, we are proud to bring them a new bond index in collaboration with SD-M. This index adequately integrates industry-specific ESG metrics in the European Corporate Bond market, focusing on those companies incorporating ESG into their business practices, while maintaining exposure to the broad market.”

Dr Axel Hesse, Founder and Shareholder of SD-M, says: “SD-M is delighted that investors could now also address the important asset class of corporate bonds using the Solactive Investment Grade Corporate SD-KPIndex. Furthermore, the backtest of the EUR index version showed attractive 8 basis points of outperformance per year since 2010.”

The index design allows for versatile customising to meet clients’ specific demands and requirements. Further adjustments, such as currency hedges, can be incorporate into the index efficiently.

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