Market Indices For Sustainable Development

A new suite of sustainable development indices is needed, targeting those markets that require the most capital if we are to deliver the SDGs and international climate commit­ments. The rise of passive investing means that market indices shape a growing share of capital intermediated by public markets.

Market participants continue to express discontent with existing benchmarks for emerging and frontier markets. Concerns relate to concentration, alignment between benchmark methodology and portfolio objectives, frequent constituent turnover, high fees, and potentially excessive market power among index providers.

Index providers have responded to clients’ demand with a slew of new sustainability indices, though none focuses on the low- and middle-income countries most in need of investment. More than 55% of the country weight in one sustainable impact index is allocated to high-income countries, while more than 45% of a flagship SDG index is allocated to the United States.

MOBILIST’s Market Indices for Sustainable Development report explores the role of market indices as a key factor in shaping and limiting capital flows to developing countries and the need for a new suite of development indices that target those markets where capital is most needed. It includes an early analysis of top-down indices tilted towards developing countries which suggests that investors may be able to outperform existing emerging and frontier market benchmarks.

MOBILIST’s subsequent Policy Note on Market Indices summarises the findings of the report and again argues for a transition from sustainability indices to indices that contribute to sustainable development in emerging market and developing economies (EMDEs).