In the follow-up to its 20th anniversary, the Ethos Foundation launches a new stock exchange index dedicated to corporate governance at Swiss companies. In collaboration with the Swiss Stock Exchange (SIX Swiss Exchange), Ethos publishes the "Ethos Swiss Corporate Governance Index" (ESCGI) which takes into account the main corporate governance best practice criteria in order to define the weight of the different constituents. This is the first index of this type on the Swiss stock market. The index allows investors to reduce the weight of companies that entail a corporate governance risk.
The new index "Ethos Swiss Corporate Governance Index (ESCGI)" privileges the companies that respect corporate governance best practice . The "Ethos Corporate Governance Principles" serve as a reference for the modification of the weighting of the companies comprised in the classic index of the Swiss market, the "Swiss Performance Index (SPI)". For Ethos’ CEO Vincent Kaufmann, "the innovative methodology of this index allows mitigation of the risks of poor corporate governance that are ignored by the classic indices. This provides investors with a better protection from corporate governance risks."
The expertise of SIX Swiss Exchange allows Ethos to benefit from the best competencies in the construction of indexes and to offer investors a credible and professional alternative to the use of traditional indexes. "The Ethos mandate to establish a corporate governance index confirms our index calculation capabilities and supports the positive development of our proprietary index suite," comments Chris Landis, Division CEO SIX Swiss Exchange.
An innovative approach
The index objectives aim to:
- Reduce the corporate governance risks by underweighting or excluding companies that do not apply best governance practices
- Reduce the carbon impact of the index by underweighting companies with significant carbon emissions
- Avoid overweighting companies that are under a serious controversy
- Avoid overweighting companies that have a weight exceeding 15% in SPI
- Overweight companies that do not fall into one of the above categories.
The criteria which are applied in order to measure the corporate governance risk are evaluated according to "Ethos Corporate Governance Principles," which are founded on current best practice in corporate governance in Switzerland and abroad. The following criteria are notably taken into consideration:
- Capital structure: negative impact when there are multiple classes of shares or an opting out/up clause
- Board: negative impact when the level of board independence is low or when there exists a permanent combination of the chairman/CEO function
- Remuneration: negative impact when the variable component of executive management remuneration is very large or when the board receives options.
"Tailor made" indexed fund
As of 30 January 2017, the new ESCGI index will serve as reference for the management of the fund "Ethos – Equities CH indexed Corporate Governance". This fund is managed by Pictet Asset Management and replicates in detail the ESCGI index. It has the advantage of indexed management in terms of reduced management fees while at the same time integrating the Ethos expertise on corporate governance. The associated voting rights are systematically exercised in accordance with the Ethos voting guidelines. The voting positions are communicated on the Ethos website two days before each general meeting and in a quarterly report especially prepared for this purpose. The fund will be open to private investors very soon (process underway at the FINMA).