By Mona Naqvi, Senior Director, Head of ESG Product Techni
By Mona Naqvi, Senior Director, Head of ESG Product Technique, North America, Daniel Perrone, Director and Head of Operations, ESG Indices, and Reid Steadman, Managing Director, World Head of ESG
The launch of the S&P 500 ESG Index in April 2019 signaled an evolution in sustainable investing. Indices primarily based on environmental, social, and governance (ESG) knowledge have been not merely a method for corporations to declare their sustainability credentials or instruments to handle tactical investments enjoying a minor function in buyers’ portfolios. The S&P 500 ESG Index and different such indices have been constructed to underlie strategic, long-term allocations on the core of buyers’ portfolios.
For many years, the prospect of inclusion in ESG indices just like the Dow Jones Sustainability Indices has inspired corporations to handle their companies with varied stakeholders and targets in thoughts. Nonetheless, these pioneering, best-in-class indices tended to be slender, together with solely a small number of the highest ESG performers. This introduced challenges to particular person and institutional buyers who have been involved in regards to the dangers inherent in extremely concentrated portfolios outlined by these indices.
The S&P 500 ESG Index addressed the necessity for an index that includes ESG values whereas providing benchmark-like efficiency. Deliberately broad—together with over 300 of the unique S&P 500 corporations—the S&P 500 ESG Index displays most of the attributes of the S&P 500 itself whereas offering an improved sustainability profile. This development may also help ease considerations that there’s an unavoidable and important tradeoff between integrating ESG and reaching a fascinating threat/return profile.
This paper outlines the traits of the S&P 500 ESG Index which have appealed to buyers, together with:
- The simple-to-understand methodology behind the index;
- How “monetary materiality” drives index development;
- The same threat/return profiles of the S&P 500 ESG Index and the S&P 500;
- How the ESG traits of the S&P 500 ESG Index enhance on these of the S&P 500; and
- Particular examples demonstrating how the S&P 500 ESG Index methodology kinds and selects corporations.
Obtain Full Article
Learn extra on ETFtrends.com.
The views and opinions expressed herein are the views and opinions of the creator and don’t essentially mirror these of Nasdaq, Inc.