The S&P Europe 350 ESG Index is designed to meet the needs of today’s sustainability-minded investors. Launched in 2019, this index was designed to represent the large-cap European market while offering an improved sustainability profile by excluding those companies that do not align with basic environmental, social, and governance (ESG) principles. Further, this index is a potential solution for investment product providers seeking to adopt an index to meet the requirements of regulations, such the European Union Sustainable Finance Disclosure Regulation (SFDR).
Rather than focusing on one aspect of ESG, the S&P Europe 350 ESG Index provides insights into a wide variety of sustainability issues, such as governance, gender diversity, the environment, human rights, risk culture, cyber security, tax strategy, and many others. The index integrates ESG scores made from 600 to 1,000 datapoints on individual issues at each company.
The S&P Europe 350 ESG Index is broad in its exposure, spanning the 11 GICS® sectors so that it is balanced in its sector composition like the underlying index, the S&P Europe 350. This alignment is a powerful tool, ensuring that the S&P Europe 350 ESG Index faithfully represents the broad European market.
In this paper, we outline why the S&P Europe 350 ESG Index is a compelling choice for European investors and provide an overview of its methodology, sustainability attributes, and risk/return characteristics.
THE STARTING POINT: AN OVERVIEW OF THE S&P EUROPE 350
The first key to the S&P Europe 350 ESG Index is understanding the S&P Europe 350. Introduced by S&P DJI in 1998, the S&P Europe 350 represents the European portion of the S&P Global 1200, which aggregates into one benchmark several other widely followed regional indices, including the S&P 500®, S&P/TSX 60, and other leading indices.
The S&P Europe 350 is a float-adjusted, market-capitalization-weighted index that includes the largest and most liquid stocks from developed Europe. The index is managed in the same way as the S&P 500, in that the 350 companies are selected by the Index Committee according to a clearly defined and transparent set of rules. Constituents are selected for the index based on size and liquidity, as well as on country and sector representation. Like the S&P 500, the S&P Europe 350 does not simply include the largest 350 stocks in the region. Rather, the index includes leading companies from each of the 11 GICS sectors across the 16 markets in the region.
The primary objective of the S&P Europe 350 is to reflect the composition of the regional European equity market, while being efficient to replicate. To achieve this goal, the index covers a high percentage of the market, while including a limited number of constituents. The index also has investment characteristics, such as country and sector composition, that closely resemble those of the broader equity market (see Appendix).