S&P Dow Jones Indices (S&P DJI) has launched a version of its widely-tracked S&P 500 equity index that excludes companies based on environmental, social and corporate governance (ESG) criteria.
The S&P 500 ESG Index was designed to serve as a performance tracking tool as well as a building block to create new ESG index-based investment products and passive investing solutions, the index provider said.
UBS Asset Management swiftly followed up on S&P DJI’s announcement to announce it had launched an exchange-traded fund (ETF) built on the new index.
It said the ETF enabled investors to get similar exposure to the S&P 500 index but with a “light ESG overlay”.
Screening based on ESG criteria would exclude companies that produced tobacco or controversial weapons and companies scoring poorly on ESG criteria across industry sectors.
The index also omits companies that show weak adherence to the United Nations Global Compact Principles of corporate behaviour.
S&P DJI worked with SAM, the unit of RobecoSAM, on the ESG scoring methodology for the new index and planned country-specific and regional ESG indices. The scores are used as inputs to evaluate companies on the indices.
The new index targets 75% of the traditional S&P 500’s market capitalisation by excluding the weakest quartile of in terms of ESG profiles. It targets sector neutrality in relation to the parent index and aims to deliver a tracking error below 100bp.
Reid Steadman, global head of ESG indices at S&P Dow Jones Indices, said: “An increasing number of investors require indices that are aligned not only with their investment goals but also their individual and institutional values. The S&P 500 ESG Index is constructed with both of these needs in mind.”
The new index was broader than many other ESG indices and “developed to target the core of an investor’s portfolio,” he added.
In February many institutional investors called on the main index providers to exclude manufacturers of controversial weapons from their mainstream indices.