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Integrating ESG into Core around the World

The S&P 500® ESG Index and Beyond

EXECUTIVE SUMMARY

  • The S&P ESG Indices align investment objectives with environmental, social, and governance (ESG) values.
  • The indices, which include the S&P 500 ESG Index can serve as benchmarks as well as the basis for index-linked investment products. The S&P ESG Indices’ broad market exposure and industry diversification result in return profiles similar to those of their benchmarks (see Appendix 1).
  • The indices use the new S&P DJI ESG Scores (see page 4) and other ESG data to select companies, targeting 75% of the market capitalization of each GICS® industry group within each index.
  • The S&P ESG Index Series excludes tobacco, controversial weapons, and companies not in compliance with the UN Global Compact (UNGC). In addition, those with S&P DJI ESG Scores in the bottom 25% of companies globally within their GICS industry groups are excluded.
  • Our methodology results in improved composite ESG scores for all the indices in the series (see Exhibit 4).

INTRODUCTION

An increasing number of investors require indices that are aligned with their investment objectives and their personal or institutional values.  The S&P ESG Indices were designed with both of these needs in mind.

The S&P ESG Indices are broad and constructed to be part of the core of an investor’s portfolio, unlike many ESG indices that have preceded them, which were thematic or narrow in their focus.  By targeting 75% of the benchmark index’s market capitalization, industry by industry, the S&P ESG Indices offer industry diversification and return profiles in line with their underlying markets (for a full list of indices in the series and their return profiles, see Appendix 1).

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