Rob Arnott's smart beta shop Research Affiliates has launched a range of new environmental, social and governance (ESG) indices, the RAFI ESG indices, and plans to launch a standalone RAFI Diversity index later in the year.

The RAFI ESG index series includes the RAFI ESG Developed index, RAFI ESG Europe index and RAFI ESG US index.

These ESG indices employ a fundamental weighting approach, which chooses components based on fundamental criteria as opposed to market cap.

In addition to traditional ESG metrics, the indices also incorporate RAFI weights with a composite score of each security’s financial discipline and diversity ratings.

The financial discipline score uses metrics that are associated with generating sustainable long-term performance, while the diversity score is measured by the firm’s commitment to gender diversity, particularly women in management, in the C-suite, and on company boards.

The Newport Beach, California-based firm is also partnering with BNP Paribas, which exclusively provides structured products linked to the RAFI ESG indices and serves as a swap counterparty for the firm.

The French bank will help market these ESG indices to institutional investors.

‘We wanted to deliver a transparent, broadly diversified, and customizable ESG strategy without sacrificing returns,’ said Vitali Kalesnik, head of equity research at Research Affiliates. ‘Our research shows that we can achieve this objective by combining our fundamental index approach to investing with a broader set of ESG measures—specifically, by including measures of financial discipline and diversity.’

The firm already has ESG-related indices including the FTSE4Good RAFI Index series and FTSE RAFI ex-Fossil Fuels Index series.

At the end of last year, there were about $205 billion in assets managed using investment strategies developed by Research Affiliates.