The State Street Low Carbon ESG International Equities Index Trust ("the Fund") invests in listed international securities in as close as possible to the same proportions as the MSCI World ex Australia Select ESG Low Carbon Integrated Index ("the Index").
The Index will exclude companies, subject to materiality thresholds identified by MSCI, with revenue from or business activities involving: tobacco; cluster bombs; landmines; chemical and biological weapons; nuclear weapons; and depleted uranium. Companies with very severe ("Red Flagged") customer, environment, governance, human rights, or labour controversies are also excluded. The Index will also have a bias towards companies with higher environmental, social and governance (ESG) ratings and away from those with high carbon emissions. In managing the Fund, SSGA typically employs a full replication indexing methodology. The Fund will attempt to hold each stock in approximately the same weight as it appears in the Index.
The following definitions and thresholds are sourced from MSCI.
Companies that manufacture tobacco products, such as cigars, blunts, cigarettes, beedis, kreteks, smokeless tobacco, snuff, snus, and chewing tobacco. This also includes companies that grow or process raw tobacco leaves.
Companies involved in the production of, or essential components of:
- cluster bombs and munitions, or the essential components of these products;
- anti‐personnel landmines, anti‐vehicle landmines;
- depleted uranium weapons and armour; or
- chemical and biological weapons, or the essential components of these products.
Involvement criteria includes:
- producers of the weapons, or key components of the weapons and ownership of 20% or more of a weapons or components producer. The minimum limit is raised to 50% for financial companies having an ownership in a company that manufactures controversial weapons or key components of controversial weapons;
- being owned 50% or more by a company involved in weapons or components production; and
- companies with any identifiable revenues from the production of controversial weapons or their components, i.e., zero tolerance.
- manufacture nuclear weapons, including nuclear warheads, intercontinental ballistic missiles, and ballistic missile submarines, which are capable of the delivery of nuclear warheads;
- manufacture components that are developed or significantly modified for exclusive use in nuclear weapons (warheads and missiles). Includes companies with contracts to operate/manage government-owned facilities that manufacture components for nuclear warheads and missiles, such as fissile materials, non-nuclear components, explosives, triggers and detonators, etc;
- provide auxiliary services related to nuclear weapons, such as repairing and maintaining nuclear weapons, providing overhaul and upgrade services (including engineering), stockpiling and stewardship, R&D work, testing and simulations, etc.
Other exclusions are determined following assessment of how well the index companies manage their most material ESG risks relative to sector peers. Companies excluded from the index are those with very severe customer, environment, governance, human rights, or labour controversies.
Companies within the Index are monitored and assessed by the Index provider. By overweighting companies with low carbon emissions relative to sales and those with low potential carbon emissions per dollar of market capitalization, the Index aims to reflect a lower carbon exposure of at least 50% of the parent index, the MSCI World ex-Australia Index.
The Index will have a bias to companies with low carbon emissions and higher ESG scores as determined by MSCI. The MSCI ESG Score indicates how well the index companies manage their most material ESG risks relative to sector peers. Scores range from 10 (best) to 0 (worst).
Further information about the MSCI methodology is available on www.msci.com.
We also view corporate governance as an integral part of the investment process. Active ownership plays a prominent role in our duty to act as stewards of our clients assets. We expect strong governance standards from our investee companies and direct engagement with them focuses on advocating change where poor ESG practices place shareholder value at risk. To this end, SSGA has developed Proxy Voting and Issuer Engagement Principles that consider ESG issues in the stewardship process which encompasses all equities for which we have discretion.