The Corporate Sustainability Index, or ISE, in Portuguese, was started in 2005 and focuses on evaluating the integration of economic, financial, social, corporate governance, product nature and environmental elements in companies listed with the Brazilian Stock Exchange. All open companies may participate in the index, provided they meet the criteria set by a questionnaire on sustainability practices and the impact of their products and services over the public. ISE’s main objective is establishing a standard for the best sustainability management practices as well as being a market instrument to incentive sustainability in other companies.
The imaginary portfolio that serves as base for the ISE calculations includes stocks from companies that are acknowledged in their commitment to social responsibility and sustainability. There can only be 40 stocks in the portfolio, and these are selected among the most traded as far as liquidity is concerned, and their significance inside the index is based on their market price.
Only the best stocks classified in terms of social responsibility and sustainability can be part of the index, according to selection criteria and classification endorsed by the Executive Council of the Corporate Sustainability Index. For this, the shares must meet the following criteria:
- Being one of the 200 stocks with the highest trading index over the 12 months before the evaluation process;
- Having participated in at least 50% of the trading sessions over the same period;
- Match the sustainability criteria defined by the ISE Board.
If the company ceases to meet any of the criteria mentioned above it will be excluded from the index. Companies undergoing administration, bankruptcy procedures of facing special situations, or those that have had their trading suspended for a long period will also be removed from the index. Asides from those factors, the Advisory Board of the ISE may, at any time, decide for the exclusion of a stock if they understand the company’s level of commitment toward sustainability and social responsibility has been significantly altered by any factors.
The imaginary portfolio used to compose the index will be reset once per year, and updates will be conducted once every four months to insure the Free Float is current as well as to check if any market sectors are overstepping their maximum participation limits.
Here are some examples of stocks composing the ISE: Vale, Fibria, Santander, Eletrobrás, Gerdau, among others.