ESG data gathered by ratings agencies can be used to create financial market-linked indices. An index represents the combined value of a portfolio of companies publicly traded in the financial markets. This forms a benchmark that investors can track but don’t invest in, per se.
Indices are weighted to adjust for the impact an individual company may have on the value. They are weighted a number of ways including by companies’ market capitalization (the value of all shares), free-float (the value of public shares) or revenue.
Well-known indices include the FTSE 100 of the highest-value companies on the London Stock Exchange or the NYSE Arca Tech 100 Index of technology companies listed on exchanges in the United States.
Similarly, investors need reliable indices to track the profitability and performance of their sustainable investments. This need is being met by a growing number of sustainability-linked indices provided by established financial data companies such as Dow Jones, S&P, Refinitiv and Bloomberg, among others.
Indices differ on how they rank companies and how they measure the same factors. A selection of the largest are described in more detail in the following pages.
