Demand for green and sustainable investment is on the rise, and the recent introduction of the S&P ESG Index Series has sharpened the investor toolkit. S&P Dow Jones Indices
(S&P DJI) manages over 1,500 environmental, social and governance (ESG) solutions including those targeting core ESG, climate-change initiatives, thematic exclusions, and green bonds. S&P DJI’s senior director of ESG Indices, Mona Naqvi [pictured below] explains how investors can tap into this growing trend.
Q. WHAT IS THE S&P ESG INDEX SERIES DESIGNED TO ACHIEVE?
We designed the S&P ESG Index Series to help investors integrate ESG objectives, without compromising their investment objectives. The indices enhance overall ESG performance, targeting companies that rank highly according to our S&P DJI ESG Scores, and that achieve this ESG boost and comparable performance, at a very low cost in terms of low tracking error, and with comparable returns.
Q. WHAT MAKES THE S&P ESG INDEX SERIES STAND OUT FROM THE OTHERS?
The difference is our combination of leading benchmarks with a powerful ESG data set, all wrapped in a straightforward methodology. We target the top 75% of market cap among eligible companies in each industry group, ranked by our S&P DJI ESG Scores. This helps achieve a sector neutral mix that mirrors the return of the parent benchmark. We also exclude companies involved in the production of tobacco or controversial weapons, those that perform poorly on the principles supporting the UN Global Compact, and any companies in the bottom 25% of our global ESG rankings.
What makes this index series so unique is the depth and quality of the underlying S&P DJI ESG Scores. Our scores benefit from over two decades of real-life investment decision making by RobecoSAM to determine the most financially material and relevant ESG signals within each specific industry, as opposed to merely a theoretical approach
to determining which issues to focus on. The data is extremely robust and granular, derived through direct engagement with companies through an annual survey. As such, it offers an unparalleled level of insight into emerging issues for assessing corporate sustainability performance beyond simply collecting data from public disclosures.
Q. HOW AND WHY WOULD INVESTORS USE THIS NEWS INDEX IN THEIR PRACTICE?
The S&P ESG Index Series helps dispel the myth of an “ESG vs. performance” trade off, and offers a compelling strategy for investors seeking to either take their first steps toward integrating ESG, or for those looking to target ESG directly at the core of portfolios. As with any of our benchmark solutions, this series has a range of potential applications, for example, to define the investable universe, to benchmark investment performance, or to support the construction of passive portfolios through investment vehicles like ETFs.
Q. WHAT IS THE LATEST EXPANSION AND HOW CAN IT HELP ASIAN INVESTORS?
The series began with the launch of the headline S&P 500® ESG Index. Since then, we have launched a global family of ESG indices, for regional and country specific benchmarks covering Europe, the Americas, MENA and APAC, providing investors with ESG benchmarks for their regional and global diversification strategies.
Q. DOES INVESTOR ESG ADOPTION AND INTEREST IN ASIA DIFFER FROM ELSEWHERE?
The market for ESG varies by region, but there is certainly growing momentum for this type of investing worldwide. For many years, Europe dominated the market with some of the most sophisticated ESG investors and public pension funds expressing their conviction in the rewards to this type of investing. However, the market for ESG in Asia and Japan in particular have recently experienced large gains through major allocations toward low-carbon and other ESG strategies.