Over recent years, investors and asset managers have broadened their approach to sustainability, in line with the proliferation of expectations from institutional investors, governments and the wider public. One such way in which this expansion has occurred in recent years is through the strengthening of conviction on sustainable index products. While screened approaches represent one established approach to sustainable indexing, we have more recently seen the growth in attention to ESG scores and stricter business activity thresholds. This is one way in which market participants can ensure that they are investing in companies with strong ESG performance, avoiding those involved in controversial business activities, while still maintaining diversified sector exposure.
In order to respond to this changing investor demand, S&P Dow Jones Indices (S&P DJI) launched the S&P 500 ESG Elite Index in December 2020. This index series is designed to measure the performance of companies that meet strict sustainability criteria, while maintaining similar overall sector weights as its benchmark.
S&P DJI ESG Scores
The demand for quality data to support investment strategies is particularly pertinent with regard to sustainability.
S&P Global provides the data that powers the globally recognized Dow Jones Sustainability Indices (DJSI), S&P 500® ESG Index and the S&P 500 ESG Elite Index, among others. Each year, S&P Global conducts the Corporate Sustainability Assessment (CSA), an ESG analysis of over 17,000 companies. The CSA has produced one of the world's most comprehensive databases of financially material sustainability information and serves as the basis for the scores that govern S&P DJI's ESG indices.
The S&P DJI ESG Scores are environmental, social and governance scores that robustly measure ESG risk and performance factors for corporations, with a focus on financial materiality.
The S&P 500 ESG Elite Index utilizes S&P DJI’s well-established ESG indexing approach of excluding, sorting, selecting and subsequently weighting companies within an index.
First, the eligible universe is established. For the S&P 500 ESG Elite Index, the underlying benchmark is the S&P 500 ESG Index. Exclusions based on business activities are then applied. These exclusions are intended to align with high-conviction objectives by avoiding companies involved in a number of controversial business activities including oil & gas, alcohol, nuclear power and palm oil.