A new Swiss stock market index has been created to reward socially responsible firms and penalise the stock value of companies with fat cat pay structures. The listing has been devised by the Ethos Foundation, which advises pension funds on sustainable investments.
The Ethos Swiss Corporate Governance Index, which appeared on the Swiss stock exchange on Monday, under-weights companies that fall short of Ethos’s good governance practices. This could include firms that combine the roles of chairman and chief executive, hand out excessive bonuses or allow majority owners to sell their stake to the exclusion of other shareholders.
It also looks at environmental factors, such as company’s carbon footprint. The index is designed to show investors which stocks are likely to hold sustainable value in the rapidly changing world of corporate governance.
The value of company stock can be reduced if Ethos believes it carries reputational problems or could be damaged in future by poor governance standards. Companies can also be excluded from the index if their ethical performance is deemed too poor.
Ethos has long fought against fat-cat bonuses in the Swiss corporate world and has actively championed the rights of minority shareholders. The foundation has played an active role in the ongoing takeover saga at chemicals firm Sika, arguing against the family of the firm’s founder selling their majority voting stake to a rival French group.
“The innovative methodology of this index allows to capture risks associated with a bad governance. This gives investors better protection against governance risks,” said Ethos director Vincent Kaufmann in a statement.
SIX Group, which operates the Swiss stock exchange, said the new index would “generate added value for investors through innovation”.
There are several other such ethical indices already in existence around the world, in particular measuring the environmental credentials of firms. But this is the first of its kind to be listed on the Swiss stock exchange.