BOVESPA´s Corporate Sustainability Index (local acronym ISE) is due for updating on December 1, and the draft questionnaire to be used in assessing the sustainability level of public companies wishing to join the new portfolio is now available for public hearing. The document also contains a brief history of socially responsible investment in Brazil, as well as the methodology used by the index in the 2005 portfolio and new developments for 2006.
An electronic file and a tool for inserting and visualizing comments and suggestions have been provided by the Sustainability Studies Center at Fundação Getúlio Vargas Business School (local acronym GVCES). They will be available on www.isebovespa.fgvsp.br/sugestoes until September 22.
The aim of the public hearing is to encourage the market and society in general to become involved in discussions of this Brazilian index of companies committed to sustainability. After the 22nd, the team at the Sustainability Studies Center (Gvces) and Bovespa´s Sustainability Index Board will appraise contributions made to the composition of the final questionnaire to be addressed to the companies issuing the 150 most liquid shares traded on Bovespa. From October 9 to November 6, companies will be able to fill out a questionnaire and submit it in order to be part of the second ISE portfolio.
About the ISE
The Corporate Sustainability Index (ISE) was compiled up on the basis of methodology developed by the Sustainability Studies Center (Gvces) at the São Paulo Business School Fundação Getúlio Vargas (FGV-EAESP), with financial support from International Finance Corporation (IFC).
The index was devised on the basis of the Triple Bottom Line (TBL), an international concept that provides an overall assessment of the economic-financial, social and environmental dimensions of companies. Corporate governance criteria and indicators were added to the TBL, as in the Johannesburg Stock Exchange index, with selection on the basis of a questionnaire and no sector being excluded a priori. Items are arranged around four themes preceded by a set of basic or overall indicators and others for product type.
Economic-financial, social, and environmental dimensions of companies were posed in the questionnaire on the basis of four sets of criteria: Policies (indicators of commitment); Management (showing plans, programs, targets and monitoring); Performance (performance indicators); and Legal Compliance (assessing compliance with rules or regulations in relation to issues such as competition, consumer rights, labor rights, or the environment).
The Corporate Sustainability Index came into effect on December 1, 2005 and its first portfolio comprised 33 shares issued by 28 companies covering twelve sectors of the economy, which are listed below in alphabetical order:
| ALL – América Latina Logística | Eletrobrás |
| Aracruz Celulose | Eletropaulo |
| Belgo Mineira | Embraer |
| Bradesco | Gol Linhas Aéreas Inteligentes |
| Banco do Brasil | Iochpe-Maxion |
| Braskem | Itaubanco |
| CCR Rodovias | Itausa |
| Celesc | Natura |
| Cemig | Perdigão |
| Cesp | Suzano Bahia Sul Papel e Celulose |
| Copel | Tractebel Energia |
| Copesul | Unibanco |
| CPFL Energia | Votorantim Celulose e Papel |
| DASA Diagnósticos da América | WEG |
The following organizations are represented on the ISE board: the Brazilian Private Pension Fund Association (Abrapp – Associação Brasileira das Entidades Fechadas de Previdência Complementar), Association of Capital Markets Analysts and Investment Professionals (Apimec – Associação dos Analistas e Profissionais de Investimento do Mercado de Capitais), National Investment Banks Association (Anbid – Associação Nacional dos Bancos de Investimento), São Paulo Stock Exchange (Bovespa – Bolsa de Valores de São Paulo), the Brazilian Corporate Governance Institute (IBGC – Instituto Brasileiro de Governança Corporativa), Ethos Institute for Business and Social Responsibility, the International Finance Corporation (IFC), and the Ministry of the Environment.
The ISE on Bovespa
ISE reflects the return on a portfolio comprised of shares in companies with the best performance on all measurements of business sustainability. It was created as a benchmark for socially responsible investment and also to encourage best practices in Brazilian business.
Bovespa calculates the index in real time during trading sessions taking the prices of the most recent trade in the spot market. The shares making up the ISE are selected from among those most heavily traded on Bovespa in terms of liquidity. Their weightings in the portfolio depend on the market value of assets available for trading.
The index is early reviewed based on the following procedures and criteria:
Inclusion criteria
- Being one of the 150 most traded shares over the twelve months prior to the revaluation.
- Having been traded in at least 50% of trading sessions held in the twelve months prior to compiling the portfolio;
- Meeting the sustainability criteria posed in the questionnaire filled out annually.
Exclusion criteria
- If the issuing company is subjected judicial recovery or bankruptcy, during the validity of the portfolio, its shares will be excluded from the index portfolio. In the event of a public offering leading to a significant portion of shares being withdrawn from the companies market free float, the company´s share will be excluded from the portfolio. In these cases, the necessary adjustments will be made to guarantee the continuity of the index.
- If an event significantly alters a company´s sustainability and social responsibility levels during the period of validity of the portfolio, the ISE board may exclude it from the index portfolio.
- If a company does not meet the sustainability criteria posed in the questionnaire during the annual review.
