IN THIS LIST

Discover Material Insights with S&P DJI ESG Data

Integrating ESG Values into Core around the World: The S&P 500® ESG Index and Beyond

The S&P 500® ESG Index: Integrating Environmental, Social, and Governance Values into the Core

Understanding REIT Sectors

ESG Index Considerations for Brazilian Pension Funds

Discover Material Insights with S&P DJI ESG Data

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Mona Naqvi

Global Head of ESG Capital Markets Strategy, S&P Global

  1. INTRODUCTION

A quarter of all professionally managed assets now incorporate environmental, social, and governance (ESG) considerations,[1] from the impact of climate change to equality and human rights.  The rich history of S&P Dow Jones Indices (S&P DJI) in this area began in 1999 by pioneering ESG indexing with the launch of the Dow Jones Sustainability Index (DJSI), which marks its 20th anniversary in 2019.

S&P DJI continues to lead sustainable indexing solutions with a suite of more than 150 headline ESG benchmarks, shaping the sustainable investing landscape.  The industry has changed considerably over the past 20 years, from a focus on sector exclusions borne out of the socially responsible investment (SRI) movement, to more nuanced approaches to broad market ownership that reweight based on company performance on ESG.  These are largely driven by the improved availability and quality of ESG data, amplified by the launch of S&P DJI ESG Scoresa rigorous new ESG dataset cultivated over 20 years of sustainable investment experience by our partner, RobecoSAM (through its SAM[1] brand), that are now available to the market for the first time. 

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Integrating ESG Values into Core around the World: The S&P 500® ESG Index and Beyond

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Reid Steadman

Managing Director, Global Head of ESG & Innovation

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Daniel Perrone

Director and Head of Operations, ESG Indices

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).

Yet, the composition of these new indices are meaningfully different from that of their benchmark indices and more compatible with the values of ESG investors.  Exclusions are made related to tobacco, controversial weapons, and compliance with the UNGC.  Furthermore, companies with low ESG scores relative to their industry peers around the world are also excluded. The result is an index series suitable for investors moving ESG from the fringe of their portfolio to the core.

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The S&P 500® ESG Index: Integrating Environmental, Social, and Governance Values into the Core

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Reid Steadman

Managing Director, Global Head of ESG & Innovation

Contributor Image
Daniel Perrone

Director and Head of Operations, ESG Indices

EXECUTIVE SUMMARY

  • The S&P 500 ESG Index aligns investment objectives with environmental, social, and governance (ESG) values.
  • It can serve as a benchmark as well as the basis for index-linked investment products. The index’s broad market exposure and industry diversification result in a return profile similar to that of the S&P 500.
  • The index uses 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 the S&P 500.
  • The S&P 500 ESG Index 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 an improved composite ESG score compared with the S&P 500. This holds true in all industries.

INTRODUCTION

An increasing number of investors require indices that are aligned with their investment objectives and their personal or institutional values.  The S&P 500 ESG Index was designed with both of these needs in mind.

The S&P 500 ESG Index is broad and constructed to be part of the core of an investor’s portfolio, unlike many ESG indices that have preceded it, which were thematic or narrow in their focus.  By targeting 75% of the S&P 500’s market capitalization, industry by industry, the S&P 500 ESG Index offers industry diversification and a return profile in line with the U.S. largecap market.

Yet the composition of this new index is meaningfully different from that of the S&P 500 and more compatible with the values of ESG investors.  Exclusions are made related to tobacco, controversial weapons, and compliance with the UNGC.  Furthermore, companies with low ESG scores relative to their industry peers around the world are also excluded.  The result is an index suitable for investors moving ESG from the fringe of their portfolio to the core.

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Understanding REIT Sectors

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Michael Orzano

Senior Director, Global Equity Indices

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Qing Li

Director, Global Research & Design

INTRODUCTION

In recent years, the U.S. real estate sector expanded to include a wide range of companies that own and operate a diverse set of assets.  As recently as 2010, the sector was dominated by companies that owned traditional commercial properties such as office buildings, apartment complexes, warehouses, and shopping centers.  However, the recent growth of specialized REITs—like those that own cell towers, data centers, and timberland, among other non-traditional real estate assets—has transformed the sector into a complex array of companies that derive income from highly distinct assets.  While all REITs share certain characteristics such as offering relatively high dividend yields, the fundamental differences in the underlying assets owned by REITs across sectors have led to different investment characteristics and patterns of returns and volatility.

REIT SECTOR OVERVIEW

There are two main types of REITs: equity REITs and mortgage REITs.  Equity REITs own and operate income-producing real estate and typically earn income through rents.  Mortgage REITs lend money directly to real estate owners and operators, or indirectly through the purchase of mortgages or mortgage-backed securities, and they earn income from the interest on these investments.  Based on the property type each equity REIT owns, we can further categorize it by its sector.  Most REITs specialize in a single property type, while some manage portfolios that include multiple types of properties.  Exhibit 1 provides an overview of the main equity REIT sectors.  

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ESG Index Considerations for Brazilian Pension Funds

INTRODUCTION

What is ESG? How can ESG be integrated into an index, especially in smaller markets? How can the divestment versus engagement arguments affect indices? How do ESG indices perform?

ESG risks have been poking their head above the water in Brazil over recent years, from issues surrounding the Amazon rainforest fires to corruption at Petrobras (BBC, 2018) and JBS (Schipani, 2018). At S&P Dow Jones Indices (S&P DJI), we have increasingly seen demand for ESG indices in Brazil and throughout Latin America in response to specific incidents and global shifts toward more responsible investment practices.

WHAT IS ESG?

ESG stands for environmental, social, and governance. Environmental factors look at issues connected to global warming, energy usage, pollution, etc. Social factors encompass issues such as a company’s management of health and safety, human capital practices, etc. Governance factors primarily address how a company is run, with metrics used including board structure and independence, executive compensation, and many more.

There are so many different terms floating around, including responsible investment, sustainable investment, and impact investing. These are all methods of incorporating ESG, with differing objectives. Exhibit 1 shows The Spectrum of Capital, which does a good job of defining the difference between different types of integration of ESG and how they differ from investments looking for purely financial returns.

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