Refinitiv and the Arab Federation of Exchanges (AFE) today launched the Refinitiv AFE Low Carbon Select Index in the Middle East and North Africa (MENA).
Environmental, Social and Governance (ESG) data and analytics is becoming of critical importance for MENA financial markets. The new index represents an ESG benchmark offering investors the opportunity to commit capital to companies that actively promote and invest in low carbon activities across their business operations in MENA. Saudi Arabia holds the largest country weight in the Index with 39.5 percent, followed by Kuwait (22.3 percent), UAE (16.6 percent), Qatar (13.4 percent), Egypt (4.5 percent), and other MENA markets (3.8 percent).
Over a five-year period, the annualized return of the Refinitiv AFE Low Carbon Select Index earned 5.1 percent outperforming the Refinitiv free float Index for eight MENA markets that recorded 3 percent over the same period. The annual return for the Refinitiv AFE Low Carbon Select index for the year 2019 was 19.75% compared to the Refinitiv MENA Index which earned 12.52% for the same year.
The historic data points illustrate the promising prospects of the region’s transition to sustainable finance. The data demonstrates that incorporating ESG into an investment approach can enhance returns and reduce risk across MENA markets. Over the past few years, regional regulators have been actively promoting investing in sustainable products. MENA companies are also embracing ESG concepts as a means of attracting investment and raising financial returns. With more sustainable products now available in the region, local investors will be able to invest in their own markets as opposed to considering other global markets that meet the ESG criteria.
Rami El-Dokany, Secretary General, AFE, said: We are delighted to partner with Refinitiv, a provider of one of the most comprehensive ESG databases in the industry. The launch of this index will pave the way for the creation of investible products in MENA including Equity Traded Funds. The Index will also contribute to attract asset managers and investment into MENA markets.”
“Our objective is to promote smarter products and companies from the region in global markets. During the COVID-19 Pandemic, the regional ESG portfolio showed a promising potential for Arab companies that are looking at consolidating their positions in this area globally,” he added.
Mohamed Farid Saleh, Chairman of AFE and Executive Chairman of The Egyptian Exchange, said “The index will pave the way for further integration amongst Arab markets. The project is an outcome of the collective efforts led by the AFE members to endorse and roll out ESG practices, principles and disclosures. ESG compliance will continue to drive sustainable performance for corporates and will contribute to the regional economic growth trajectory.”
Nadim Najjar, Managing Director, Middle East and Africa (MEA), Refinitiv, said: “ESG metrics are now critical in portfolio analysis, equity research, screening or quantitative analysis across MENA markets. The new index will offer investors the possibility to benchmark ESG datasets in the region and integrate them into their applications for in-depth analysis.”
“The index will help us look at ESG as an asset class that needs to be prioritized as a value and as a practice in MENA markets. Investor relations programs are lagging in this part of the world and this new index will further help with the integration of MENA markets,” he added.
Najjar concluded: “Refinitiv ESG databases covers over 70% of global market cap, across more than 450 different ESG metrics, with history going back to 2002. With local language expertise and operating from different locations across the globe, we process numerous publicly available information sources with the aim of providing up-to-date, objective and comprehensive ESG coverage.”
Shirley Barrow, Head of Indices & Benchmarks, Refinitiv, said: “We are delighted to collaborate with the Arab Federation of Exchanges and create a new, unique ESG index for the MENA region. Through the launch of this index, companies with an environmental focus on reducing carbon emissions are recognised and it provides the market with a new solution for sustainable investing.”
About the MENA Refinitiv AFE Low Carbon Select Index
The constituents’ universe includes equities traded on Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Saudi Arabia, Qatar, and the United Arab Emirates. To construct the parent index, the universe then follows rules applied to Refinitiv Global Equity Indices (RGEI), which are free float adjusted market capitalization weighted indices, with the following inclusion criteria:
- A minimum 15% free float (companies are dropped if free float falls below 10% after inclusion);
- A minimum of 3 months trading history;
- Companies with multiple international listings are included on the basis of country of incorporation, security’s primary listing and volume. In most cases, the country of incorporation is same as primary listing. For few exceptions where the country of incorporation is not where the security has the primary listing, Refinitiv uses the security’s primary listing to determine membership.
- Various liquidity measures are used to ensure illiquid companies are not included in the index, and all constituents need to satisfy the following criteria:
- Be part of the top 99.5% of the free float market capitalization of the exchanges under consideration;
- Be part of the top 99.5% of the trading value of the exchanges under consideration;
- Trade on at least 90% of trading days; and
- Have a minimum unadjusted market cap of US$150mn and free float adjusted market cap of US$75mn
The parent index is rebalanced biannually every April and October.