There are three principal types of sustainability index:

  • Ethical exclusion indices - which are constructed by screening out companies exposed to 'undesirable' industries and business activities or companies that contravene religious principles
  • Broad sustainability indices – which are constructed from top-down by filtering a conventional market index through broad-based sustainability (often ‘best-in-class’) screens
  • Specialist thematic indices – which are constructed from bottom-up by identifying stocks exposed to specific activities or issues.  Renewable and clean tech indices are common; climate change indices are becoming more so.  There are also a number of esoteric single-issue indices (e.g. human capital management indices etc.)

Usage of SRI indices

Indices are used by providers of investment products in a variety of ways:

  • As weighted constituents lists against which to manage:
    • passive funds
    • ETFs
    • structured products
  • As benchmarks for actively managed funds (although many active SRI fund managers use mainstream benchmarks)
  • As stock universes for active fund management (rarely)