Scientific Beta

FNArena: "Meanwhile, ETF Stream reports that asset manager Scientific Beta says even sustainability indices are flawed. The manager believes this particularly poses a threat for passive investors – particularly in exchange traded funds (ETFs), which have been the recipients of billions of dollars in recent years. The asset manager calls out construction methodologies; the EU Technical Expert Group on Sustainable Finance’s choice of decarbonisation metrics; and “primitive approach” to sectoral issues in a report entitled A Critical Appraisal of Recent EU Regulatory Developments Pertaining to Climate Indices and Sustainability Disclosures for Passive Investment."

FNArena 22/04/2021

"(...) Meanwhile, ETF Stream reports that asset manager Scientific Beta says even sustainability indices are flawed. The manager believes this particularly poses a threat for passive investors – particularly in exchange traded funds (ETFs), which have been the recipients of billions of dollars in recent years. The asset manager calls out construction methodologies; the EU Technical Expert Group on Sustainable Finance’s choice of decarbonisation metrics; and “primitive approach” to sectoral issues in a report entitled A Critical Appraisal of Recent EU Regulatory Developments Pertaining to Climate Indices and Sustainability Disclosures for Passive Investment. Scientific Beta stressed that a lack of public data used in benchmarks created “an uneven playing field” that was harming competition in the index provider space. The main criticism was that the benchmarks promoted the outright divestment of high-carbon intensity assets crucial to the transition but does little to encourage transition leadership. Scientific Beta also criticises as “counterproductive” the TFCD’s calculation that is based on enterprise value including cash “EVIC”, which attributes greenhouse gas emissions to a company’s enterprise value rather than its revenue, which will skew the investors’ views to carbon intensity between growth companies and value companies, a core objective for ESG investors. As a result, EVIC, “encouraged greenwashing” as it introduced equity market volatility into measurement and incentivised index construction on unreliable data, says the company. (...)"