Development of Argentina's Stock Exchange Sustainability Index

The first of its kind in Latin America, Argentina's Stock Exchange (BYMA) Sustainability Index, was created to identify leading companies within the Capital Market for their sustainability practices, therefore giving them higher visibility at the regional and international levels.

BYMA Sustainability Index assesses issuers according to their environmental, social and governance (ESG) performance and objectively determine ranks using public information. The Index is complemented with sustainable development criteria, aligned to the Sustainable Development Goals (SDGs), as established by the United Nations, in order to reflect Issuers' contribution to the development of Argentina. For info in Spanish go to "Indice de Sustentabilidad de BYMA".

Foto: Lanzamiento BYMA's Sustainability Index. Bernardo Gillamón, Gerente IDB/ORP, Maria Julia Diaz Ardaya (Grupo Clarín), Dr. Satyajit Bose (Columbia University), Victoria Galeano (CEO, PRISSMA).

Client:

Argentina's Stock Exchange and the Inter-American Development Bank

Challenge:

Develop an ESG-meaningful Sustainability Index focused on the sustainability and development challenges of Argentina, to reward leading companies and mobilize capitals to support the country's sustainable development path and climate priorities..

Solution:

PRISSMA's staff developed one of the most innovative sustainability indexes of the region. BYMA's Sustainability Index is aligned to the country's development priorities and evaluates the companies' efforts to tackle climate change, protect the country's natural resources and reduce the poverty gap.

What is a stock market index?

Stock market indexes around the world are powerful indicators for global and country-specific economies. In the United States the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite are the three most broadly followed indexes by both the media and investors.

There are approximately 5,000 U.S. indexes. The three most widely followed indexes in the U.S. are the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite. The Wilshire 5000 includes all the stocks from the U.S. stock market. Indexes can be constructed in a wide variety of ways but they are commonly identified by capitalization and sector segregation.

What are sustainability indexes and why are they needed?

Fund managers use various strategies to select investments with high ESG standards. One is to monitor sustainability indexes and rankings. These indices constitute a list of companies according to a scoring system that classifies their performance in the social, environmental and governance areas.

How are sustainability indexes built? 

Index Developers, such as PRISSMA, specialized in designing the measuring, ranking and weighting methodology of indexes, develop a sustainability framework around which different key performance indicators are created to assess and select the companies that will be part of index. This assessment process is repeated at different times to determine which are the best companies based on their results in economic, environmental and social priority areas.

How does a firm benefit from inclusion in a Sustainability Index?

First, being included in some of the most prominent sustainability indexes is a staple of good citizenship for corporations. It tells investors and consumers that the company takes sustainability seriously and has made substantial corporate investments in activities that redound to the triple bottom line. Second, shares of companies listed in such indexes are very often recommended for allocation in the investment portfolios of public and private pension funds as well as public- and privately- held corporations where responsible/sustainable investing is deemed highly desirable. Third, the path to becoming an industry leader in sustainability is full of rewards, not only because it increases access to capital but because it creates an internal corporate dynamic of transparency with all investors and stakeholders.

A number of studies, including a recent one by George Serafeim of Harvard Business School, have demonstrated that companies that show investments in material sustainability issues can be value-enhancing for shareholders.