Temporary Adjustment to Alphabet´s assessment according to the ISS ESG Norm-Based Research

ISS ESG has recently assigned Alphabet a red flag based on the criteria in the category “Norm-Based Research” (“ISS NBR”). This assessment is based on a potential violation of UN Global Compact Principle 10 due to allegations of unfair exploitation of market power.

Background

For indices that apply the ISS NBR criteria, Solactive assesses the respective index for potential breaches of the Norm-Based Research. Based on ISS’s current assessment, Alphabet would typically be removed from the impacted indices during the next index rebalancing.

However, significant feedback from market participants has been raised regarding the strictness of this assessment. Furthermore, there is a lack of alignment among ESG providers regarding this evaluation.
ISS has acknowledged these concerns and will be conducting in January a market consultation to potentially adjust its methodology. Should such changes occur, Alphabet might no longer receive a red flag.

Given this context, and considering the high trading costs associated with removing and potentially re-adding Alphabet to the index, Solactive has decided to maintain Alphabet’s amber flag status temporarily. Consequently, Alphabet will not be removed from the indices as part of the NBR criteria.

This approach reflects Solactive´s commitment to minimizing unnecessary costs for clients while awaiting further clarity from ISS on its methodology assessment. Future developments will be monitored closely and incorporated into the index selection process where operationally and timing-wise feasible.