UPDATE | Methodology Change | Solactive Clean Water Index | Effective Date 3rd March 2022

Today, on 25.02.2022, Solactive announces an update to the market consultation published on 10.02.2022 (Link: https://www.solactive.com/market-consultation-solactive-clean-water-index-february-2022/) and the below announcement published on 24.02.2022.

The update in Section 2.1 Index Universe Requirements is as follows:

Announced Text:

[…]

The applicable categories and inclusion criteria of the ESG Exclusions Enhanced Index as of 28th of February 2022 are set out in ANNEX B of this document.

Updated text:

[…]

The applicable categories and inclusion criteria of the ESG Exclusions Index as of 28^th of February 2022 are set out in ANNEX B of this document.

The methodology changes will become effective on 03.03.2022.

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Today, on the 24th of February 2022, Solactive announces the following changes to the methodology of the following indices (the ‘Affected Indices’):

Rationale for Methodology Change

The Indices aim to track the performance of a basket of stocks of companies that are actively engaged in the  international clean water industry through the provision of technological, digital, engineering, utility and/or other services.

As per the current selection process of Indices, the companies on the Future Protection List (the “FWPL”) provided by Legal & General Investment Management (“LGIM”) are not included as the Index Components. The FWPL includes companies which meet any of the following criteria:

• Involvement in the manufacture and production of controversial weapons,
• Perennial violators of the United Nations Global Compact (UNGC),
• Involvement in mining and extraction of thermal coal

Solactive has determined that the methodology of the Indices shall be amended to enhance the ESG activity screens from the existing FWPL to a more restrictive exclusion list. The suggested enhanced list will screen the companies on all of the above criteria as well as additional activities. A more detailed overview of the considered activities can be found below in section “Proposed Changes to the Index Guideline”.

Additionally, to ensure investability of the Indices as well as reflect the actual liquidity available in the market, the weighting concept is proposed to be amended.

Changes to the Index Guideline

The following Methodology changes will be implemented in the following points of the Index Guideline:

Section 2.1 Index Universe Requirements

Old text:

[…]

2. Any company listed on the Future World Protection List (the “FWPL”) produced by Legal & General Investment Management (“LGIM”) are then excluded. The FWPL is reconstituted by LGIM on a semi-annual basis in March and September. The methodology by reference to which the FWPL is constructed is published on Future World Protection List Methodology. The Calculation Agent will use the most recently published FWPL list that is available on a respective Selection Day.

[…]

New text:

[…]

2. On each Selection Day, any company included in the ESG Exclusions Index as determined by Solactive is then excluded from the Index Universe. To clarify, due to the methodology of the ESG Exclusions index, which only consists of companies that are covered by the Data Provider II and are fulfilling the set of ESG criteria, companies that do not have full ESG data coverage and are therefore not represented in the ESG Exclusions Index might be included in the Index Universe and could be selected as Index Components, This could be the case for, but is not limited to, companies that went public recently and for which no ESG data coverage as provided by the Data Provider II is immediately available.

The ESG Exclusions Index is reconstituted by Solactive on a semi-annual basis and the methodology by reference to which the ESG Exclusions Index is constructed, together with the most recent applicable categories and inclusion criteria, is available on the Solactive website.

The applicable categories and inclusion criteria of the ESG Exclusions Enhanced Index as of 28^th of February 2022 are set out in ANNEX B of this document.

Section 2.2 Ordinary Adjustment

New text:

The composition of the Index shall be adjusted on each Adjustment Day that is deemed to be a Rebalancing Day by the Calculation Agent.

Each Adjustment Day that occurs in the month of March and September shall be deemed to be a Rebalancing Day. In addition, if the Calculation Agent determines that the Index Component Weight of any Index Components is greater than 15% on any other Review Day, then the Adjustment Day that occurs immediately after such Review Day shall be deemed to be a Rebalancing Day.

On each SELECTION DAY each INDEX COMPONENT is weighted in accordance with the following steps
I. Each Index Component is initially weighted equally 𝑤_𝑖^∗;
II. Then, for each Index Component the maximum weight 𝑤_{𝑖,𝑚𝑎𝑥} is calculated as:

where,

 

Where:

AuM – the maximum of total assets under management in US Dollars of ETFs tracking the index as listed in Appendix C and USD 50 million;

Haircut – assumed 10%;

Liquidity Measure –  3-month USD Average Daily Value Traded;

Market Cap –  the company full market capitalisation in USD;

Max Ownership – assumed 7.5%;

Participation (%) – assumed 100%;

Turnover – assumed 40%.

III. In respect of Index Components whose initial weight 𝑤_𝑖^∗ is greater than 𝑤_{𝑖,𝑚𝑎𝑥}, the Target Index Weight 𝑤_𝑖 shall be set to be equal to 𝑤_{𝑖,𝑚𝑎𝑥}, and the excess weight is then calculated as follows:

                                                   

 

The cumulative excess weight is calculated as the sum of 𝑤_𝑖,excess in respect of all Index Components whose initial weight 𝑤_𝑖^∗ is  greater than 𝑤_{𝑖,𝑚𝑎𝑥}