Indexology^® Blog

Over the last 10 years, sustainable investing has become increasingly prevalent, and concerns surrounding the risk of greenwashing have increased. To assist S&P DJI’s customers with new European Securities and Markets Authority (ESMA) fund naming guidelines, S&P DJI announced the renaming of the S&P 500^® ESG Index to the S&P 500 Scored & Screened Index. Please note that the regulatory guidance under the ESMA guidelines on fund names using ESG or sustainability-related terms does not apply directly to S&P DJI.¹

S&P 500 Scored & Screened Index: Same Methodology, Different Name

The S&P 500 Scored & Screened Index’s objective remains the same: to track securities that meet specific sustainability criteria while reflecting the S&P 500’s industry group weights.

The name change does not alter the methodology; the criteria for selecting and excluding constituents remain unchanged, ensuring consistency as a benchmark.

• The index applies various eligibility criteria, such as UNGC screens, S&P MSA Screens and S&P Business Activity Screens before using S&P Global ESG Scores to select and exclude constituents. The index aims to reflect 75% of the market cap within each industry group, focusing on the top-ranking eligible index constituents by S&P Global ESG Score to maintain sector neutrality.

The S&P 500 Scored & Screened Index has continued² to achieve an enhanced ESG score against the S&P 500 with an absolute 5.05% increase in aggregate (see Exhibit 2).

The S&P 500 Scored & Screened Index has maintained similar sector weights as the S&P 500,³ posting only a 6.44% sector-active share as of Feb. 10, 2025 (see Exhibit 3).

While performance is not the objective of the index, the S&P 500 Scored & Screened Index has outperformed the S&P 500 over the mid and long term, and not at the expense of an increased risk profile, as seen in Exhibit 4. Moreover, the S&P 500 Scored & Screened Index has maintained comparable performance to the S&P 500 thanks to its similar industry group weights, with an average annualized tracking error of 1.36%, demonstrating a relatively low deviation.

Ecosystem

The ecosystem linked to the S&P 500 Scored & Screened Index remains intact,⁴ supporting a variety of financial products such as ETFs, ETDs, mutual funds, insurance products and structured products. Key offerings include E-mini S&P 500 ESG Index Futures⁵ from CME and options contracts from Cboe.⁶ Despite the name change, the ecosystem’s integrity and functionality continue to benefit investors and financial institutions.

Conclusion

The transition from the S&P 500 ESG Index to the S&P 500 Scored & Screened Index represents a significant step to accommodate index users in line with the ESMA guidelines on the use of ESG and sustainability-related terms in fund names while preserving the index’s core principles. The index methodology remains the same, ensuring its reliability as an underlying benchmark for a vast ecosystem.

For more information about the S&P 500 Scored & Screened Index and our other sustainability indices, please visit our website or reach out to our client services team.

¹S&P Dow Jones Indices, Education. “FAQ: Index Name Changes in Response to the ESMA Guidelines on Funds’ Names Using ESG- or Sustainability-Related Terms.” Jan. 9, 2025.

²Sanchez, Maria. “A Measure of Success – The Evolution of ESG Scores in the S&P 500 ESG Index.” S&P Dow Jones Indices – Indexology^® Blog. Nov. 12, 2024.

³ Rowton, Stephanie. “Sector Neutrality – An Essential Mechanism within the S&P 500 ESG Index.” S&P Dow Jones Indices – Indexology^® Blog. Sept. 9, 2024

⁴ Spivey, Aran, Michael Orzano and Igor Zilberman. “The Growing S&P 500 ESG Index Liquidity Ecosystem” S&P Dow Jones Indices. Jan. 5, 2024.

⁵ See https://www.cmegroup.com/markets/equities/sp/e-mini-sandp-500-esg-index.html

⁶ See https://www.cboe.com/tradable_products/sp500/esg_spx_options/

In a previous blog, we delved into the S&P Global Sustainable1 Climate Action Framework, a powerful tool designed to gauge companies’ readiness for the low-carbon transition across three key pillars: Climate Governance and Strategy, Physical Risk Adaptation Strategy, and Climate Risk Mitigation and Alignment.

In this blog, we introduce the recently launched S&P World Climate Resilience Tilted Index, which presents an innovative approach to incorporate climate-related factors within an index. The index incorporates elements of the S&P Global Sustainable1 Climate Action Framework, carbon intensity and climate solution revenue exposure indicators, aiming to increase the weight or tilt toward companies that are relatively more climate resilient, carbon efficient and have higher exposure to green revenues. It was designed to complement S&P DJI’s family of indices that integrate climate-related data by providing an index solution that factors in forward-looking climate transition considerations alongside climate risk and opportunity aspects, while remaining broadly diversified.

Introducing the S&P World Climate Resilience Tilted Index

The S&P World Climate Resilience Tilted Index is a broad-based index that aims to be industry group- and region-neutral relative to its underlying index, the S&P World Index.^[1]

The index does not seek to exclude specific sectors that are traditionally removed or underweighted from indices that focus on climate-related factors, such as Energy and Utilities. The index does, however, apply a few, common safeguarding exclusions (see Exhibit 1). Instead, the index aims to retain strong representation of sectors that have carbon-intensive companies that are nevertheless thought to be crucial to help adjust to a lower GHG emissions economy.

The index then tilts eligible companies’ weights within each tilting group^[2] based on four tilting factors, as shown in Exhibit 2. These include backward-looking climate metrics, such as Carbon Intensity^[3]; strategy-related forward-looking elements, such as two pillars of the S&P Global Sustainable1 Climate Action Framework—namely the Climate Governance and Strategy and Physical Risk Adaptation Strategy; and finally, a component that reflects climate transition opportunities, as measured by the revenue exposure to Climate Impact Solutions.

By design, the index shows low active sector weights relative to the underlying S&P World Index. Traditionally underweighted sectors like Energy and Utilities have been preserved at similar benchmark sector weights, as the tilting is applied within the region-industry-group tilting groups, minimizing unintended sectoral biases. In other words, companies are under/overweighted only relative to their tilting group peers, resulting in a weighting scheme that is more comparable to the underlying index (see Exhibit 3).

The low sector active weights compared to the underlying index are also reflected in the reduced observed levels of tracking error historically, which were below 100 bps for all tested time periods (see Exhibit 4). In terms of performance, the return differential between the S&P World Climate Resilience Tilted Index and the S&P World Index was reduced (see Exhibit 5).

Based on back-tested historical data, the index achieved improvement across all tilting factors that are controlled for in the methodology, such as lower index-level weighted-average carbon intensity (WACI), lower exposure to physical risk and higher revenue exposure to companies providing solutions for climate impact (see Exhibit 6). Additionally, we see higher exposure to Transition Strategic companies and lower exposure to Transition Limited companies, which, while not controlled for explicitly, are a beneficial byproduct from the specific data inputs used in the index methodology.

The tangible impacts from climate change present a deeply complex global challenge. For investors seeking a tool to help integrate and measure climate-related considerations while maintaining broad sector diversification and leveraging forward-looking climate transition readiness signals, the S&P World Climate Resilience Tilted Index may provide an effective solution.

^[1] Please see index methodology here.

^[2] Tilting groups are defined as region-industry groups.

^[3] Please note that the index does not target a specified weighted-average carbon intensity improvement relative to the parent index.

No matter how vast the index landscape becomes, sectors remain central to the conversation. From TV studios to trading floors, and around the world, the 11 GICS^® sectors are widely recognized and discussed, reflecting their enduring utility as indicators of which way markets and economic winds are blowing. They are also valuable building blocks for tailoring views of the U.S.-domiciled, globally exposed members of the S&P 500^®.

January presented another opportunity for thoughtful tilts, as investors navigated the unexpected following an election-year November and a December marked by high dispersion, making their views known through sector performance. In Exhibit 1, we show January performance of The 500™ along with each of its component GICS sectors. January marked the third month in a row that the sector spread (the different between highest- and lowest-performing sectors) reached double digits, at 12.0%. Information Technology was the sole decliner, falling 2.9% largely on the heels of a new entrant in AI upending the competitive landscape and erasing nearly USD 800 billion in market cap from two constituents in a single day.

Although losses among a handful of mega-cap stocks grabbed the headlines and affected The 500’s performance near the end of the month, looking at Exhibit 1 we can see that 7 out of 11 sector indices actually outperformed the broad benchmark in January, led by Communication Services rising 9.1% after a series of positive earnings reports. Looking more closely, we see that those seven outperformers contain a mix of historically defensive and cyclical sectors.

The simple classification of sectors as cyclical versus defensive is well accepted and discussed in recent research as a function of the observation that certain sectors have tended to perform better or worse depending on whether the market is rising or falling, exhibiting betas above or below one as well as a range of historical volatility. Understanding which sectors have historically outperformed in each phase, a market participant might identify which sectors align with their own economic outlook and change their sector views accordingly. Bucketing sectors into defensive and cyclical based on ranking their risk attributes and their excess returns during rising or falling markets can allow for rational tilts based on highlighting sectors that have historically offered relatively better performance in each environment.

Extending from recent research testing blends of sectors through historical crises, we use the same two approaches below to understand sector performance over the course of January.¹

Cyclical Blend: An equal-weighted combination of five cap-weighted cyclical sectors (Information Technology, Financials, Materials, Consumer Discretionary and Industrials), rebalanced monthly.

Defensive Blend: An equal-weighted combination of five cap-weighted defensive sectors (Utilities, Energy, Consumer Staples, Health Care and Communication Services), rebalanced monthly.

Exhibit 2 illustrates the hypothetical performance of each blend, perhaps indicating that the sum of the parts is sometimes greater than the whole, as both the defensive and cyclical blends outperformed The 500.

S&P 500 sectors continue to play versatile roles in a variety of strategies. From making strategic and tactical tilts, to reflecting the diversification qualities that come from blends, sector approaches have endured and will continue to help us understand markets in 2025 and beyond.

¹ Cyclical and defensive blends are comprised of the top five and bottom five sectors as ranked by historical beta and volatility. Real Estate, ranked in the middle of the 11 S&P 500 sectors, is excluded from this analysis.

The S&P High Yield Dividend Aristocrats^® (S&P HYDA) includes large-, mid- and small-cap companies in the U.S. that have consistently raised their dividends for at least 20 consecutive years. This blog will examine the recent rebalance of the S&P HYDA, detailing the changes in its constituents and their distribution by size and sector. Additionally, we will highlight the dividend increase history of these constituents.

The index recently completed its annual reconstitution on Jan. 31, 2025, welcoming 18 new members into this distinguished group (see Exhibit 1). Following the inclusion of these new members and accounting for two dropouts, the index’s total constituent count has risen from 133 to 149, enhancing its overall diversification and liquidity.

Market-Cap Breakdown

Among the 149 constituents of the S&P HYDA as of the latest rebalance, 96 stocks are sourced from the S&P 500^®, 38 from the S&P MidCap 400^® and 15 from the S&P SmallCap 600^®. In terms of constituent weights, S&P HYDA has a higher weight in the mid-cap and small-cap segments compared to the S&P Composite 1500^®, as illustrated in Exhibit 2.

Sector Breakdown

With 149 constituents, the S&P HYDA currently includes representatives from all 11 GICS^® sectors: 34 constituents from Industrials, 24 from Financials, 22 from Utilities, 21 from Consumer Staples, 16 from Materials and 32 from the remaining 6 sectors.

As shown in Exhibit 3, the S&P HYDA significantly underweights the Information Technology (-24.0%), Consumer Discretionary (-6.8%) and Communications Services (-6.2%) sectors. Conversely, the index demonstrates a substantial overweight in Utilities (13.1%), Consumer Staples (11.7%) and Industrials (9.6%).

A Long History of Dividend Growth

Exhibit 4 summarizes the number of constituents that have increased their dividends in five-year increments. Approximately 30% of constituents have raised their dividends for 20 to 24 years, while 39% have done so for 25 to 44 years or longer. Additionally, 32% of constituents have achieved this for 45 years or more. These track records illustrate these companies’ historically consistent ability and willingness to return increasing amounts of capital over multiple decades.

The S&P 500^® Dividend Aristocrats^® tracks an elite group of companies that have raised their dividends for a minimum of 25 consecutive years. This index has just concluded its annual reconstitution, which was effective at the market close on Jan. 31, 2025. Erie Indemnity Company, Eversource Energy and FactSet Research Systems have been added, which increases the membership list to 69 stocks.

Introducing the Index’s Newest Members

Erie Indemnity Company

Erie Indemnity Company is a property and casualty insurance company offering auto, home, business and life insurance. According to the company website,¹ Erie Insurance was founded in Erie, Pennsylvania in April 1925 by founders H.O. Hirt and O.G. Crawford.

According to their latest quarterly earnings release, as of Sept. 30, 2024, Erie Indemnity’s quarterly net income increased from USD 131.0 million in Q3 2023 to USD 159.8 million in Q3 2024, representing a 22.0% year-over-year increase.

Eversource Energy

Eversource is an energy company headquartered in Hartford, Connecticut and Boston, Massachusetts with operations that go back to the middle of the 19^th century, according to their company website.² Today they serve 4.4 million customers in the New England region.

As of Jan. 31, 2025, Eversource provided a 4.96% dividend yield, more than double the S&P 500 Dividend Aristocrats’ dividend yield of 2.39%.

FactSet Research Systems

FactSet Research Systems is a financial data and software company founded in 1978 by Howard Wille and Chuck Snyder. Its current headquarters are in Norwalk, Connecticut, and it has 37 offices in 20 countries according to the company website.³

According to FactSet’s latest quarterly earnings release, as of Nov. 30, 2024, the company was highly profitable, with a gross margin of 54.5%, a return-on-equity of 29.2% and a return on invested capital of 15.6%.

The S&P 500 Dividend Aristocrats Sector Breakdown

The new additions had a slight impact on the overall sector weights. As Exhibit 1 shows, the index retained its relatively large overweight in consistent dividend-paying sectors such as Consumer Staples and Industrials. Conversely, the index maintained its large underweights in the Information Technology and Communication Services sectors.

A Long History of Dividend Growth

Exhibit 2 illustrates that following the most recent rebalancing, over 60% of the existing members of the S&P 500 Dividend Aristocrats have increased their dividends for at least 40 years. Additionally, more than 40% of these members have achieved dividend growth for 50 years or longer.

¹https://www.erieinsurance.com/our-history
²https://www.eversource.com/content/residential/about/our-company
³https://www.factset.com/our-company