Methodology
Index Construction
The eligible universe for the KLD North America Sustainability Index includes companies that comprise the top 75% of the market capitalization of each sector in each country of the S&P/Citigroup BMI North America.
KLD uses a common global rating and analysis system to evaluate the environmental, social and governance (ESG) performance of each company in the eligible universe. KLD then ranks companies by sector peer group according to ESG performance. To generate comparative sector rankings, KLD identifies key ESG performance indicators for each sector and weights them accordingly.
| Environmental, Social and Governance Factors |
Environment |
Social |
Governance |
| Policies and Mgt. Systems |
Employees |
Governance Structure |
| Products & Services |
Contractors & Supply Chain |
Business Ethics |
| Natural Resource Use |
Customers |
Transparency & Reporting |
| Climate Change |
Communities & Society |
Shareholder Relations |
| Waste & Emissions |
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The KLD GSI Committee then selects the highest-ranked companies that comprise 50% of the market capitalization of each sector. Due to various constraints, not all sectors will hold exactly 50% of the available market capitalization.
The NASI eligible universe includes companies from 2 developed market countries in the North American region but does not control for country representation and is not constrained to match country representation in the underlying universe or in the S&P/Citigroup BMI North America.
Index Reconstitution
The NASI is reconstituted on the last day of October to reflect changes made to the S&P/Citigroup BMI North America, which reconstitutes annually on the last day of September.
Index Maintenance
The GSI Committee is responsible for all changes to the Index and is committed to keeping turnover on the Index as low as possible and in line with the turnover of the S&P/Citigroup BMI North America. To that end, the Committee attempts to minimize the number of discretionary changes to index holdings between annual reconstitutions.
The Committee continually monitors the NASI constituents for events that would require changes to index composition. These events include: corporate actions, changes in ESG performance and deteriorating financial quality.
Mergers & Acquisitions
For mergers or acquisitions involving two NASI constituents, the resulting entity will remain on the Index. If a constituent company acquires a non- constituent, or if a non- constituent acquires a constituent, the GSI Committee will evaluate the eligibility of the resulting entity for inclusion on the Index.
Discretionary Removals
On a quarterly basis (January, April, and July, October), the GSI Committee conducts a comprehensive ESG performance review of the holdings of the Index.
The GSI Committee may remove a company from the Index at any time due to significant deterioration in ESG performance. The GSI Committee maintains a Watch List comprised of companies whose standing on the Index is tenuous due to a decline in ESG performance.
IPOs
Companies with Initial Public Offerings (IPOs) added to the S&P/Citigroup BMI North America between reconstitutions are only considered for the NASI at annual reconstitution. This ensures that KLD has sufficient information on the ESG performance of a company upon which to base its decision.
Delisted Companies
The GSI Committee will remove NASI companies that are liquidated or undergoing reorganization related to bankruptcy, following the procedures employed by S&P. These companies will not be eligible for inclusion in the Index until one year after emerging from bankruptcy.
For Information on KLD North America Sustainability Index Analytics, Licensing and Redistribution contact Indexes@kld.com.
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