Starting with the big question, what does ESG mean to investors and can S&P DJI help?
Does it mean:
- Avoiding certain unethical or unsustainable business practices? Yes—S&P 500® Sustainability Screened Index
- Investing in clean energy? Yes—S&P Global Clean Energy Index
- Integrating ESG scores? Yes—S&P 500 ESG Index
Can it mean combining best-in-class ESG scores and avoiding unsustainable and unethical business practices? Absolutely! Allow us to introduce the S&P 500 ESG Elite Index, which is designed for investors, unhindered by tracking benchmark returns, and motivated by sustainability and ethical concerns.
How Is the S&P 500 ESG Elite Index Constructed?
The first step is to apply an extensive range of global exclusions focused on business activities, Environmental, Social, and Governance (ESG) scores and United National Global Compact (UNGC) scores. The remaining eligible companies are ordered by S&P DJI ESG Score within their GICS® sectors and the top 25% in each sector are included in the S&P 500 ESG Elite Index.
Please see the index methodology for a full breakdown of the index construction rules.
Why Is the S&P 500 ESG Elite Index Different?
- The index utilizes market-leading SAM, part of S&P Global, ESG datasets that are built on a foundation of hundreds of ESG data points collected from public sources, as well as direct company dialogue. SAM produces unique ESG surveys for 61 industries, based on salient ESG risks and opportunities. Only the top 25% of ESG scoring companies within each sector are included in the index.
- Acknowledging the climate emergency and with climate being a top priority for ESG investors, extensive fossil fuel screens are applied.
- A broad range of ESG exclusions are made, including nascent ESG screens such as palm oil and predatory lending, as well as more established screens such as alcohol and gambling.
- Ongoing ESG controversy monitoring ensures any new significant ESG controversy between rebalances allows for a fast exit from the S&P 500 ESG Elite Index.
- By selecting the top ESG performers within sectors, the index targets the same broad market exposure as the S&P 500.
What Are the Results?
- The S&P 500 ESG Elite Index has a 31% higher aggregate S&P DJI ESG Score compared with the S&P 500.
- The S&P 500 ESG Elite Index had a 44% lower carbon-to-revenue footprint compared with the S&P 500.
For those looking for the same broad market exposure as the flagship U.S. equity benchmark, the S&P 500, but with a focus on the best-performing ESG companies, the S&P 500 ESG Elite Index may fit the bill.The posts on this blog are opinions, not advice. Please read our Disclaimers.