What is the BIST Sustainability Index?

What is the BIST Sustainability Index? What are the benefits of the sustainability index to companies? Check this article to find answers to all your questions. Enjoy reading!

What is the Index?

A stock market is established for securities in almost every country worldwide. Borsa Istanbul (BIST) was founded in 1985 in Turkey. BIST enables any kind of securities to be exchanged in line with the laws.

There are ''indices'' in the BIST, just like in any other global stock exchange markets. An index is a measure for a basket of securities. Indices are calculated based on the size of the securities.

For example, the BIST 100 Index is the index that lists the top 100 securities with the highest trading volume in the Turkish market. The BIST 30 and BIST 50 can be given as other examples for indices traded in the Borsa Istanbul. Each index has a trading code.

Share indices traded in the Borsa Istanbul are also diversified. For example, there are corporate governance indices, public offering indices and so on. One of these indices is the "sustainability index." This index includes trading of companies that provide information, raise awareness, and conduct successful practices regarding sustainability in Turkey.

So, what exactly is the sustainability index and how does it work?

Global and National Sustainability Indices

Countries that set goals by considering the principle of "sustainable development" which attracted attentions by the Brundtland Report pioneered by the United Nations in 1987 are achieving progress in terms of sustainability in line with the international and local laws. Countries make commitments such as reducing GHG emissions, preventing drought and tackling the climate change and support sustainable development.

For further details, please click here to check our article on "What is Sustainable Development?".

While governments begin supporting sustainability in almost every country, institutional sustainability has also become important. Thus, private companies have started supporting sustainable development to fulfill their social responsibility missions.

Simply put, the sustainability index in the stock market is a measure of the actions taken by companies in economic, social, and environmental issues, as well as a benchmark for the commitments made in these areas. Companies that take into consideration, not only pecuniary profit, but also human rights, climate change, environmental issues, health and safety, ethics, etc. are listed in this index. The obligations of the stakeholders of these companies towards their employees, investors, customers, shareholders, suppliers, NGOs, and trade associations are defined based on sustainability criteria.

How does the BIST Sustainability Index Work?

The BIST Sustainability Index, trading code XUSRD, was launched in 2014. The Index was established by the valuation, calculation and publication of companies listed in the BIST 30 index.

The indexing of companies in the BIST Sustainability Index occurs voluntarily. The voluntary evaluation of companies that raise awareness on sustainability and their comparative ranking in this index enhances their competitive strength.

How to be Included in the BIST Sustainability Index?

To be included in the BIST Sustainability Index, companies are expected to meet all the following three criteria:
1. Combined ESG Score should be 50 or more.
2. Each Pillar score should be 40 or more.
3. At least 8 of category scores should be 26 or more.

The BIST Sustainability Index is prepared following an annual sustainability valuation.

The BIST Sustainability Index Process

The social and governance performances, as well as the environmental awareness of the companies in the sustainability valuation process are taken into consideration.
The BIST Sustainability Index valuation considers the "publicly available data":

• The data provided by companies is weighted.
• Negative developments in relevant issues are monitored to determine the non-compliance score.
• The Overall Sustainability Score is calculated based on the environmental, social, and corporate governance (ESG) ratings.

Companies prioritize ESG criteria to demonstrate their efforts in sustainability and contribute to a sustainable future. Thus, they also prove their participation in the global awareness on sustainability.
Brands would like to demonstrate that they participate in contributing the sustainable living. Therefore, they attach significance to ESG scores. ESG scores are measured as part of the BIST Sustainability Index.

Which Criteria is the Calculation of the ESG Score Based on?

There are three main criteria considered to determine a company’s ESG performance.

1. Environmental Criteria

Environmental criteria are measured by how companies manage their climate-related risks and environmental performance.

• Use of Resources
• GHG Emissions
• Innovation

2. Social Criteria

Social criteria are measured to determine a company's relationship with its stakeholders and its social impacts.
• Employee Relations
• Human Rights
• Community Impact
• Product/Service Responsibility

3. Corporate Governance Criteria

Corporate governance criteria evaluate a company’s management activities and decision-making processes.

• Management Structure
• Stakeholder Engagement
• Corporate Social Responsibility (CSR)

But what are the benefits for a company to be listed in the Sustainability Index?

Benefits of Being Included in the BIST Sustainability Index

Companies get s advantages once they are listed in the BIST Sustainability Index.

• Competitive Advantages
• Investment Opportunities
• Comparability
• Risk Management
• Visibility
• Brand Reputation
• Investor Communication

What is the Contribution of the Sustainability Index to Companies?

The Sustainability Index contributes to the industries that the companies operate as well as to their countries. These are the commercial benefits of the Sustainability Index. However, the index also covers tackling climate change related to the global warming, developing environmentally friendly products, focusing on a sustainable future, etc. The index also considers employment and gender mainstreaming as part of sustainability.

Since the companies evaluated as part of the index adopt the principle of transparency in their operations, they enhance their public reputation and improve their image as a reliable brand.

The sustainability index is also a reliable criterion for investors. Investors in the stock market consider this index when they want to invest in companies with high corporate sustainability value. Thus, investors can compare the companies both locally and globally with this index.

Why is the Sustainability Index Important?

In today's world, companies are not only focused on growth and trade benefits, but they also focus on raising consumer awareness, sustainability-oriented incentives, and corporate responsibility, which encourage companies to also focus on creating social benefits. Hence, the Sustainability Index is important for companies that contribute to building a greener, equal, and more sustainable future. The index also serves as a guiding tool for investors.

Globalization and digitalization facilitate raising awareness of governments, institutions, companies, and individuals. In constructing a sustainable future, it is of great significance to take initiative not only for governments and local authorities but also for companies.