Overview
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Home S&P/EGX ESG Index Overview
S&P/EGX ESG Index Overview  
 
The Environment, Social and Governance (ESG) Index for Egypt has been created by the Egyptian Institute of Directors, Standard & Poor’s and Crisil. EIoD conducts the ESG research for scoring, under the guidance of Standard & Poor’s and Crisil, and with the assistance of the Egyptian Stock Exchange (EGX), the Egyptian Exchange also tested the historical data for consistence.

The purpose of S&P/EGX ESG index is to raise the profile of those companies that perform well along the three parameters of environmental, social and corporate governance responsibility when compared to their market peers.

Linking stock market performance to ESG is, perhaps, the most effective way to highlight the concept of corporate-level Environment, Social and Governance responsibilities. More and more indices are being used to create derivative products, exchange traded funds (ETFs), OTC products and structured products, all of which provide liquidity and investability to specific market segments. Investors, in turn, have access to an investable tool which matches their investment preferences. As investment in ESG products increases, it will become imperative for companies to delve into their business practices and strive to improve them.

The process of creating this index is twofold. The first step is to define a multi-layered approach to creating an ‘ESG’ score for each company. Often in the past, the approach has been to create such an index using subjective analysis, thereby limiting the complete transparency that is required to make an index attractive to some investors. The current idea is to stay away from subjective decisions and, instead, make decisions based on quantitative factors. The second step is to create an index which includes companies with the highest ESG scores. Its relative score determines each company’s weight in the index – companies carrying a higher score carry more weight. In addition, some weight is given to the size of each company. A secondary threshold for selection is liquidity. A company with a perfect ESG score but no market liquidity can become an impediment to the success of an index.