The S&P ESG Index Series is aimed at those looking to integrate environmental, social and governance (ESG) considerations into their investment products. These indices aim to provide returns comparable to those of the benchmark index by having the same exposure to the industry group as the underlying index while simultaneously offering an improved ESG profile.

Within the European equity market, the S&P Europe 350 ESG Index is designed to measure constituents that meet the sustainability criteria of the S&P Europe 350® stock, which tracks 16 major European markets and covers around 70% of the market capitalization of the region. The S&P Europe 350 ESG Index is a unique strategy designed for the ESG-conscious investor looking for broad exposure to the European market through an efficient index to track.

How is the S&P Europe 350 ESG Index constructed?

The first step is to apply exclusions focused on commercial activities (controversial weapons, tobacco, thermal coal), ESG scores and United National Global Compact (UNGC) scores. The remaining eligible companies are ranked by S&P DJI ESG Score within their GICS® industry groups, and constituents are selected by targeting 75% of the market capitalization of each S&P Europe 350 industry group.

Please see the Index Methodology for a full breakdown of the Index Construction Rules.

Why choose the S&P Europe 350 ESG index?

  • The S&P Europe 350 ESG Index uses both ESG screens and ESG scores. This is an established methodology that resonates with the European market – nearly 70% of the over $ 4 billion invested in the S&P 500® ESG Index, which uses the same methodology, is invested in products listed in Europe. .
  • The index uses market-leading S&P Global ESG datasets based on hundreds of ESG data points collected from public sources, as well as direct dialogue with the company. Companies are assessed against unique ESG surveys for 61 sectors, based on key ESG risks and opportunities.
  • S&P Global Media & Stakeholder Analysis (MSA): Ongoing monitoring of ESG controversies ensures that any constituent that experiences a significant ESG incident between rebalances can be promptly removed from the S&P Europe 350 ESG Index.
  • The methodology incorporates E&S characteristics (via S&P DJI ESG Scores) and indicators of good governance (i.e. companies with low UNGC scores are excluded and controversies monitoring using the MSA) and therefore potentially aligns with Article 8 of the EU’s Sustainable Finance Disclosure Regulation.

Why integrate the S&P DJI ESG scores?

The April 2021 index rebalancing results underscore the importance of incorporating S&P DJI ESG scores into the index methodology. Seven of the top 10 constituent exclusions were due to ESG scores (see Table 1).

For example, Novo Nordisk has had a deteriorating ESG score in recent years, dropping from 98 in 2018 to a score of 69 in 2020. Notable areas of material weakness for the company are human capital development and management. innovation.

The S&P Europe 350 ESG Index had 246 constituents as of April 2021, with companies with low ESG scores or companies conducting business activities not meeting the ESG standards of the underlying index being excluded. The index offers an ESG S&P DJI score improved by 6.85% * compared to the benchmark, as well as a low tracking error of 1.04%. The result is a large European index that incorporates robust ESG objectives for investors concerned with sustainability.

* The improvement in the ESG score is calculated as the difference between the ESG score at the level of the index of the ESG index and the ESG score at the level of the index of its underlying index.

The articles on this blog are opinions, not advice. Please read our disclaimers.


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