Funds Group: Global X
Management Company: Global X Management Company LLC.
Funds Affected: (1) Global X Conscious Companies ETF, (2) Global X S&P 500 Catholic Values ETF
Principal Sustainable Investment Management Strategy: (1) Impact Investing, (2) Values-Based Investing, Exclusions
Summary:
(1) The fund seeks to replicate the performance of the underlying index, the Concinnity Conscious Companies Index which, in turn, is designed to provide exposure to companies listed in the U.S. that operate their businesses in a sustainable and responsible manner, as measured by their ability to achieve positive outcomes that are consistent with a multi-stakeholder operating system (MsOS), as defined by Concinnity Advisors LP, the provider of the index. The MsOS is a corporate governance structure that seeks to account for the multiple stakeholders that are critical for the ongoing success of the business, and incorporate the considerations of these stakeholders into the corporate decision-making and problem-solving process. Concinnity Advisors conducts its analysis based on the following five key stakeholder groups: (1) Customers, (2) Employees, (3) Suppliers, (4) Stock and Debt Holders, and (5) Communities in which the companies operate.
The universe of companies eligible for inclusion in the index is comprised of companies listed in the United States with a market capitalization greater than $2 billion. From this initial universe, the index provider applies a proprietary, three-step analysis to select companies for the index. In the first step, the Concinnity Advisors utilizes approximately forty information sources and public rankings to identify and evaluate companies based on their demonstrated ability to achieve positive outcomes across all five stakeholder groups. Positive outcomes vary by stakeholder group, but include metrics that assess areas such as employee productivity, customer loyalty and corporate governance.
hese information sources are vetted annually and evaluated based on stakeholder focus, research methodology and third party or in-house analysis of a source’s potential as a leading indicator of corporate and/or stock performance. Companies are scored based on their appearance and performance in these sources and rankings. Of the approximately 1,100 – 1,400 companies that typically make up the eligible universe, approximately 600-700 are generally selected for further analysis and potential inclusion in the index.
In the second step of the research process, Concinnity Advisors uses a composite analysis to apply a deeper evaluation on the remaining companies. The composite analysis is a process that assesses various MsOS criteria by combining ratings data from multiple research entities that specialize in various stakeholder assessment categories. Companies are evaluated through a series of scoring lenses that combine to form a composite score, which is underpinned by several hundred MsOS criteria. Composite analysis MsOS criteria include, but are not limited to: employee engagement, executive integrity, customer relationship quality, labor and human rights, and quality of financial reporting. Various modeling techniques are then used to combine qualitative and quantitative data into a single score for each company. This score reflects the degree to which a company operates its business using the MsOS approach, as defined by the research process. The approximately 300-350 highest scoring companies ultimately comprise the MsOS investable universe for the purposes of constructing the underlying index.
In the final step, a screen for consistent achievement is applied to the MsOS investable universe of the approximately 300-350 highest scoring companies. In order to be included in the underlying index, a company must have qualified for inclusion in the MsOS investable universe for at least three consecutive years.
(2) The fund seeks to replicate the performance of the underlying S&P 500 Catholic Values Index which, in turn, is designed to provide exposure to U.S. equity securities included in the S&P 500 Index while maintaining alignment with the moral and social teachings of the Catholic Church. The underlying index is based on the S&P 500 Index, and generally comprises approximately 500 or less U.S. listed common stocks. All index constituents are members of the S&P 500 Index and follow the eligibility criteria for that index. From this starting universe, constituents are screened to exclude companies involved in activities which are perceived to be inconsistent with Catholic values as outlined in the Socially Responsible Investment Guidelines of the United States Conference of Catholic Bishops (“USCCB”). The underlying Catholic Values Index then reweights the remaining constituents so that the underlying index’s sector exposures matches the sector exposures of the S&P 500 Index.
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