discover material insights with s&p dji esg data · available—giving investors the...

Contributors

Mona Naqvi

Senior Director

ESG Indices

S&P Dow Jones Indices

[email protected]

Manjit Jus

Head of ESG Ratings

RobecoSAM

[email protected]

Discover Material Insights with S&P DJI ESG Data 1. INTRODUCTION

A quarter of all professionally managed assets now incorporate

environmental, social, and governance (ESG) considerations,1 from the

impact of climate change to equality and human rights. The rich history of

S&P Dow Jones Indices (S&P DJI) in this area began in 1999 by pioneering

ESG indexing with the launch of the Dow Jones Sustainability Index (DJSI),

which marks its 20th anniversary in 2019.

S&P DJI continues to lead sustainable indexing solutions with a suite of

more than 150 headline ESG benchmarks, shaping the sustainable

investing landscape. The industry has changed considerably over the past

20 years, from a focus on sector exclusions borne out of the socially

responsible investment (SRI) movement, to more nuanced approaches to

broad market ownership that reweight based on company performance on

ESG. These are largely driven by the improved availability and quality of

ESG data, amplified by the launch of S&P DJI ESG Scores—a rigorous

new ESG dataset cultivated over 20 years of sustainable investment

experience by our partner, RobecoSAM (through its SAM2 brand), that are

now available to the market for the first time.

Exhibit 1.1: A Long History of ESG Indexing

Source: S&P Dow Jones Indices LLC. Chart is provided for illustrative purposes.

1 Kell, Georg. “The Remarkable Rise of ESG.” Forbes. July 11, 2018.

2 SAM is a registered trademark of RobecoSAM AG. SAM is used to market services and products of a business unit within RobecoSAM, which specializes in providing ESG data, ESG rating services, and ESG benchmarking. SAM is not to be considered as a separate legal entity.

Register to receive our latest research, education, and commentary at go.spdji.com/SignUp.

mailto:[email protected]

mailto:[email protected]

https://spdji.com/documents/additional-material/faq-spdji-esg-scores.pdf

http://www.forbes.com/sites/georgkell/2018/07/11/the-remarkable-rise-of-esg/#75e942fb1695

https://go.spdji.com/SignUp.html?src=DocFooters

Discover Material Insights with S&P DJI ESG Data January 2020

INDEX EDUCATION | ESG 2

2. A NEW ERA FOR ESG INDEXING

Since S&P DJI and SAM joined forces to launch the DJSI in 1999, the

index has become the global standard for corporate sustainability

performance. It serves as a reference point for thousands of firms looking

to improve their sustainability practices and benchmark themselves against

their peers. The DJSI is well respected among corporations and investors

alike, and it is built upon one of the most established databases of

corporate sustainability information in the world. The underlying scores

used in its calculation have now been redesigned to reflect the needs of a

broader group of investors, available for the first time with the launch of

S&P DJI ESG Scores.

This coincides with the launch of a global suite of S&P ESG Indices,

including the flagship S&P 500® ESG Index, driven by the new scores.3

These indices target the top 75% of ESG-ranked companies by market cap

within industry groups, whose weights remain unchanged. As such, these

indices offer sustainable alternatives to traditional broad market

benchmarks with similar risk and return profiles and low tracking errors.

From traditional best-in-class approaches like the DJSI to mainstream

strategies for integrating ESG across broad market benchmarks, S&P DJI

offers a variety of ESG index solutions to accommodate diverse ESG

objectives for almost every type of investor.4

Exhibit 2.1: S&P DJI ESG Indices

CATEGORY DESCRIPTION EXAMPLES

Core

Best-in-class approaches like the DJSI that target the top 10% of ESG performers; and broad market approaches, like the S&P 500 ESG Index, designed to closely track the benchmark with similar risk/return profiles.

• S&P ESG Indices • Dow Jones Sustainability Index

(DJSI) Series • S&P 500 Ex-Tobacco

Climate

Designed to address the risks and opportunities stemming from climate change and the low-carbon transition through carbon reduction objectives, fossil-fuel free strategies, and forward-looking approaches aligned with the recommendations of the Task Force for Climate-related Financial Disclosures (TCFD).

• S&P Global Carbon Efficient Indices

• S&P Global 1200 Fossil Fuel Free Indices

• S&P Carbon Price Risk 2030 Adjusted Indices

Thematic Indices that focus on specific ESG issues, often with a relatively narrow sustainability objective.

• S&P Long-Term Value Creation (LTVC) Indices

• S&P Global Clean Energy Indices • S&P/Drucker Institute Corporate

Effectiveness Index • Dow Jones Green REIT Indices

Fixed Income

Fixed income variants and a suite of indices providing access to the green bond market.

• S&P Green Bond Indices • S&P 500 Bond Investment Grade

Carbon Efficient Index

Source: S&P Dow Jones Indices LLC. Table is provided for illustrative purposes.

3 For more information, please see: “The S&P ESG Indices: Integrating Environmental, Social, and Governance Values into the Core.”

4 See Appendix A for performance charts highlighting the performance of the S&P 500 ESG Index against the S&P 500 since 2010.

While most ESG scoring methodologies reward companies that merely disclose ESG issues, irrespective of how well the company manages them… …the SAM research process critically accounts for both transparency and performance on these matters.

https://spdji.com/indices/equity/sp-500-esg-index-usd

https://spdji.com/documents/education/education-the-sp-500-esg-index-integrating-esg-values-into-the-core.pdf?



3. S&P DJI ESG DATA

S&P DJI ESG data provide some of the most comprehensive ESG metrics

available—giving investors the transparency and flexibility to drill down into

material, granular, and industry-specific criteria to inform their particular

needs. Exhibit 3.1 summarizes S&P DJI’s ESG data offering and

distinguishes it from others in the market.

Exhibit 3.1: Summary of S&P DJI ESG Indices and ESG Data

ESG Indices Since 1999

S&P DJI has one of the longest track records in the ESG benchmarking space, having pioneered ESG indexing with the world’s first ever global sustainability benchmark, the DJSI, in 1999. This long history affords S&P DJI an unparalleled level of historical insight into ESG indexing compared with more recent endeavors by other providers.

SAM ESG Ratings Coverage 7,000 (by 2020)

S&P DJI ESG Scores are currently available for 4,700 publicly listed companies (representing approximately 90% of global market capitalization), with coverage expanding to 7,000 companies by 2020 (representing approximately 95% of global market capitalization).

Data Points per Company Available for up to 27 Criteria (Built upon a Foundation of up to 1,000 Granular Data Points per Company)

S&P DJI ESG data are available at the aggregate score level, in addition to the three underlying environmental, social, and governance dimensions, and further accessible up to as many as 27 industry-specific criteria per company. Each of these levels of company ESG data are available for investors to use and derive meaningful signals, with full transparency and flexibility to manipulate the metrics to inform their own investment process. All of the above rests upon a solid foundation of 80-120 question-level scores and a further 600-1,000 granular data points for every company assessed.

Transparency versus Performance

Performance and Transparency

While many ESG datasets rely solely on company reporting and thus reward companies that simply disclose ESG issues—irrespective of how well a company manages its performance on these matters—S&P DJI ESG Scores critically account for both transparency and performance. The S&P DJI ESG scoring methodology further rewards companies that disclose underreported sustainability topics that are of growing importance to investors and the rapidly evolving ESG landscape.

Integrates Controversies Yes

S&P DJI ESG Scores are dynamic, accounting for the evolving landscape of ESG issues with up-to-date annual assessments and ongoing monitoring of company controversies through its Media & Stakeholder Analysis (MSA).

Data Collection Method Direct Company Engagement plus Public Disclosure via Corporate Sustainability Assessment (CSA)

S&P DJI ESG Scores benefit from one of the only ESG data collection processes to go beyond simply collecting information from public disclosures, by engaging with companies directly through the annual CSA. With direct and targeted company access, the CSA can capture a much broader range of sustainability topics at a much more granular level than public reporting, for a robust and comprehensive assessment of company ESG performance.

Source: RobecoSAM and S&P Dow Jones Indices LLC. Table is provided for illustrative purposes.

S&P DJI ESG data provide some of the most comprehensive ESG metrics available today… …giving investors the opportunity to drill down into material, granular, and industry-specific criteria



4. MORE THAN JUST PUBLIC DISCLOSURE

For decades, SAM has engaged companies directly through its annual

Corporate Sustainability Assessment (CSA) to gain unparalleled insight into

company sustainability. The CSA assesses 4,800 companies within 61

industries5 through customized questionnaires that focus on the most

material and relevant ESG issues. Where possible, the CSA relies on

primary data provided by companies directly through the survey. It need

not rely entirely on public disclosures. Nor does the CSA simply measure

the transparency and completeness of company reporting. While most

datasets reward companies that merely disclose ESG issues, irrespective

of how well the company manages them, the SAM research process

critically accounts for both company transparency and performance on

these matters. For any company that does not respond, an expert team of

analysts collects public information and fills out the CSA on its behalf to

ensure there are no data gaps for reliable index and portfolio construction

through a tried and tested framework.

5. RAISING THE BAR ON ESG

Since SAM issued the first CSA in 1999, sustainability topics have evolved

and investor expectations have risen. To stay current, CSA topics are

reviewed annually and the methodology is adjusted as needed. By

engaging companies directly, the CSA is uniquely positioned to reflect

upcoming or underreported sustainability topics that are of growing

importance to investors. Indeed, SAM frequently challenges companies on

emerging topics that may become part of upcoming regulatory changes,

reporting guidelines, or the broader conversation. For instance, the CSA

first explored company tax strategies in 2014, just as this matter was

becoming a contentious issue in corporate responsibility circles and before

companies had started to disclose on it (see Exhibit 5.1).

Thus, while most ESG scores rely solely on public information that can be

patchy and suffer from time lags, the CSA process gives a deeper and

time-sensitive review of how companies are managing issues in line with

the rapidly evolving ESG landscape. It is often the first time a company is

asked about a certain topic, spurring a conversation within the company

that could lead to a change in its policies or public reporting.

5 SPDJI ESG scores currently cover roughly 4,800 publicly listed companies, representing approximately 90% of global market cap.

Coverage is expanding to 7,000 (representing approximately 95% of global market cap) by 2020.

SAM engages with companies directly through its annual CSA… …which enables it to gain an unparalleled level insight into corporate sustainability performance. Since 1999, sustainability topics have changed considerably… …as companies strive to improve their practices and investor expectations are rising.



Exhibit 5.1: Topics Assessed by SAM Prior to Becoming the Focus of Mainstream ESG Investors

TOPIC INCORPORATED INTO

THE CSA SINCE INVESTOR DEVELOPMENT

Human Capital Development

2002 The Human Capital Management Coalition, established in 2017, now includes 25 asset owners covering USD 2.8 trillion of assets.6

Human Rights 2002 Human Rights became a top ESG criterion for money managers in 2018, representing USD 2.2 trillion of assets.7

Climate Strategy 2013

The TCFD published recommendations in 2017 for climate-related financial disclosures. The initiative has the support of over 100 C-level professionals, corporations, financial institutions, stock exchanges, rating agencies, and index providers.8

Tax Transparency

2014 The UN Principles for Responsible Investment guide published in 2018 recommended evaluating and engaging on corporate tax strategy.9

Policy Influence

2017 Evidence emerged in 2018 that this was becoming a top shareholder concern, due to a filing by 74 institutional investors aimed at 50 U.S. companies.10

Source: RobecoSAM. Table is provided for illustrative purposes.

6. AN INDUSTRY-SPECIFIC APPROACH

Once a company’s assessment is complete, SAM calculates scores using

predefined weighting schemes driven by the financial materiality of topics

within specific industries (see Exhibit 6.1). Built upon a solid foundation of

600-1,000 data points per company, up to 120 question-level scores are

calculated for companies’ responses to each CSA question. These scores

are aggregated to as many as 27 industry-specific criteria, and three

environmental (E), social (S), and governance (G) dimensions before rolling

up into the headline ESG score (see Exhibit 6.2). This entire process is

prescribed by the materiality-driven weighting scheme for each industry.

For instance, cybersecurity may matter more in the IT Services industry

than in Metals & Mining, and vice versa for Waste Management. The

concept of materiality here is not only defined by risk exposure, but also by

the relevance of financial outcomes. These weights have been crafted

through the lens of a real-life investment process rather than an arbitrary or

theoretical approach to selecting the most material issues within each

sector. However, because investor opinions may differ when it comes to

the relative importance of E, S, and G issues, the data are available down

to the underlying criteria for investors to manipulate as needed for their

investment process.

6 Human Capital Management Coalition. UAW Retiree Medical Benefits Trust. http://uawtrust.org/hcmc.

7 www.ussif.org.

8 For more information, see the Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures (June 2017).

9 Source: UN Principles for Responsible Investment. “EVALUATING AND ENGAGING ON CORPORATE TAX TRANSPARENCY: AN INVESTOR GUIDE.” May 17, 2018. https://www.unpri.org/esg-issues/governance-issues/tax-avoidance.

10 Source: Pensions & Investments. “Investor coalition files proposals at 50-plus companies on lobbying activities.” March 9, 2018. https://www.pionline.com/article/20180309/ONLINE/180309806/investor-coalition-files-proposals-at-50-plus-companies-on-lobbying-activities.

Once a company’s CSA is complete, SAM calculates scores using predefined weighting schemes… …which are driven by the financial materiality of topics within specific industries.

http://uawtrust.org/hcmc

http://www.ussif.org/

https://www.fsb-tcfd.org/publications/final-recommendations-report/

https://www.unpri.org/esg-issues/governance-issues/tax-avoidance

https://www.pionline.com/article/20180309/ONLINE/180309806/investor-coalition-files-proposals-at-50-plus-companies-on-lobbying-activities

https://www.pionline.com/article/20180309/ONLINE/180309806/investor-coalition-files-proposals-at-50-plus-companies-on-lobbying-activities



Exhibit 6.1: Example of the Industry-Specific Approaches to Criteria and ESG Score Weights

Source: RobecoSAM. Chart is provided for illustrative purposes.

Exhibit 6.2: Illustrative S&P DJI ESG Score Pyramid

Source: S&P Dow Jones Indices LLC and RobecoSAM. Chart is provided for illustrative purposes.

7. A FINANCIALLY MATERIAL LENS ON ESG

RobecoSAM defines a financially material topic as “any factor which may

have a present or future impact on a company’s value drivers, competitive

positioning and, therefore, its ability to create long-term value for its

shareholders.” While hundreds of possible criteria might affect a

company’s sustainability, only a few critical issues will determine the

success of its future business model. However, such highly material

factors vary significantly among industries (see Exhibit 6.1). For this

reason, the CSA comprises both industry-specific questions—for example,

RobecoSAM defines a financially material topic as “any factor which may have a present or future impact on a company’s value drivers, competitive positioning, and… …therefore, its ability to create long-term value for its shareholders.”



those regarding financial inclusion for Financials—and generic ESG

questions that are deemed relevant for all industries, such as those related

to corporate governance, risk management, or business ethics . To

determine the industry-specific portion of the CSA, SAM calculates the

most financially material factors using an industry materiality matrix like the

one for the Pharmaceuticals industry shown in Exhibit 7.1.

Exhibit 7.1: Example of Industry-Specific Materiality Matrix – Pharmaceuticals Industry


8. MEASURING INTANGIBLES

A key consideration throughout the CSA is how different forms of capital

can affect financial performance. In other words, to what extent can

intangible assets such as human capital or social capital influence financial

performance through stronger growth, better profit margins, or fewer

business risks? Our data consider the extent to which these assets are

influenced by ESG issues and whether such channels give a comparative

advantage to certain companies relative to their peers.

Some questions considered throughout this process are demonstrated in

Exhibit 8.1. Continuing with the example of Pharmaceuticals, company

value may be driven by innovation and access to patients, while the

industry may face megatrends such as demographic and pandemic trends,

rising healthcare costs, and diminishing patient trust in providers. The

intangible assets that affect long-term value might include innovation

management, market access strategy or management, and business ethics

(see Exhibit 8.1). Possible key performance indicators to assess the value

of these types of assets could be levels of research & development

productivity, pipeline workflow, history of product recalls, and customer

satisfaction. As a result, the industry-specific portion of the

Pharmaceuticals CSA would likely focus on these types of metrics for a

material assessment of company sustainability.

To what extent can intangible assets influence financial performance… …through stronger growth, better profit margins, or fewer business risks?



Exhibit 8.1: Defining Financially Material ESG Information


Exhibit 8.2: How Do Intangible Assets Affect Financial Performance?


9. UNPICKING SIGNALS FROM REAL INVESTMENT

EXPERIENCE

RobecoSAM integrates both sustainability and financial data in its valuation

models. In practice, this means looking beyond tangible or physical assets

and considering how ESG criteria could affect the value of intangibles and

financial metrics (see Exhibit 8.2). Putting a monetary value on

intangibles—an increasing component of company value11—lies at the

heart of ESG. Once the effects of sustainability criteria are incorporated in

this way, analysts can approximate long-run company value through holistic

fair value estimates (see Exhibits 9.1 and 9.2 for an illustration of this

research). The SAM CSA methodology thus benefits from decades of

integrated valuation analysis and investment performance by RobecoSAM

to back-test and identify the most relevant issues within industries.

11 According to Ocean Tomo (2015), more than 80% of corporate value reflected in the S&P 500 was driven by tangible assets in 1975, while

intangible assets accounted for less than 20% of the value. By 2015, these figures had reversed with intangible assets accounting for 87% of the value of companies in the S&P 500, while tangible assets accounted for the remaining 13% of corporate value in the index. See chart in Appendix D for more information.

RobecoSAM integrates sustainability factors and financial data in financial valuation models to arrive at holistic fair value estimates for companies. In practice, this means looking beyond tangible or physical assets and considering how ESG criteria may affect the value of intangibles and financial metrics.



Exhibit 9.1: RobecoSAM’s Approach to Integrating Sustainability Criteria into Valuation


Exhibit 9.2: Illustrative Integrated Valuation Analysis of an Internet Services & Infrastructure Company

Source: RobecoSAM. Table is provided for illustrative purposes.

10. REAL-TIME ANALYSIS OF COMPANY CONTROVERSIES

S&P DJI ESG Scores are dynamic, responding to the evolving ESG

landscape with up-to-date annual assessments and ongoing monitoring of

controversies. Although the CSA is annual (see Exhibit 10.1), through

SAM’s partner RepRisk, a leading provider of ESG intelligence, information

is collected from print and online media, government bodies, regulators,

think tanks, and other sources through its daily Media and Stakeholder

Analysis (MSA).12 It identifies incidents that could have a damaging and

lasting effect on companies’ reputations, financial circumstances, or

business models. MSA cases cover topics such as crime, corruption,

fraud, illegal commercial practices, human rights abuses, labor disputes,

workplace safety, catastrophic accidents, and environmental violations.

An MSA case is created if: (1) a company is seen to bear some

responsibility for a specific negative event; (2) the incident reveals that the

company’s actions are inconsistent with its stated policies and goals, or it

12 The MSA is performed daily using stories compiled and pre-screened by RepRisk, a business intelligence provider specialized in ESG.

S&P DJI ESG Scores are dynamic, accounting for the evolving landscape of ESG issues… …with up-to-date annual assessments and ongoing monitoring of company controversies.



exposes a failure of company management or processes; and (3) it meets a

condition of materiality, meaning there is potential for reputational and

financial damages through loss of customers, exposure to liabilities,

litigation and fines, or the disruption of operations. Depending on the

severity, SAM may downwardly adjust a company’s criteria-level scores

under the E, S, or G dimensions. However, an MSA will only affect a

company’s headline ESG score to the extent that the criteria involved are

sufficiently material and weighted within that industry.

Exhibit 10.1: Annual CSA Cycle with Continuous Analysis of Company Controversies


11. A RIGOROUS DATA COLLECTION PROCESS

The SAM CSA methodology applies robust quality control and data

verification processes to information provided by companies or collected by

analysts. For more than 20 years, a cornerstone of the CSA has been a

rigorous set of guidelines, on which SAM analysts and data scientists are

thoroughly trained. This ensures all data are scrutinized using the same

high-quality standards. The guidelines are frequently updated as

expectations around best practice, reporting standards, or legal

requirements changes, and they are automatically enforced through inbuilt,

mandatory checks in a state-of-the-art, purpose-built software platform

used by companies and analysts to interface directly (see Exhibit 11.1).

The platform requires company submissions to be backed by evidence,

supporting documentation, and substantiated with real-life examples, which

are then scrutinized by an expert team of analysts and crosschecked with

statistical analysts for further verification. The high-tech platform also

facilitates real-time, direct conversation between analysts and companies if

further clarification is needed. The process and results are subject to an

annual third-party audit by a leading, independent audit firm to ensure a

consistent and rules-based application of the methodology.13

13 CSA is annually audited by Deloitte.

The ongoing MSA collects information that could have a damaging effect on companies’ reputations, financial circumstances, or business models.

The SAM CSA methodology applies robust quality control and data verification processes to all information provided by companies or collected by analysts.



Exhibit 11.1: The SAM Software Platform Used to Interface with Companies


12. HOW THE SCORES HAVE EVOLVED

To reflect the needs of a broader group of investors, S&P DJI ESG Scores

offer a new variant of the SAM ESG data (see Exhibit 12.1). The CSA is

updated every year to reflect current trends in the fast-moving ESG

landscape. However, the SAM ESG data used in the calculation of the

DJSI have never before been brought to market for use outside of the

RobecoSAM investment process since it was created in 1999. Appendix C

summarizes the key similarities and differences of the two methodologies.

The main differences are in how unanswered questions are treated.

To compete for one of the top spots in the DJSI and within their respective

industry, over 1,000 companies spend a significant amount of time and

resources on completing the CSA each year. Inclusion in the DJSI is seen

as a badge of honor for global sustainability champions, and many

companies make responding to the CSA a priority. In the DJSI ESG data

methodology, a company receives zero points for any questions it fails to

respond to. However, to create an impartial dataset for broad market ESG

benchmark construction, as with the S&P 500 ESG Index, the data must

avoid self-selection and response bias. Companies ought to be assessed

and considered for inclusion in the index whether they respond to the CSA

or not, so long as they meet the eligibility criteria. With the new S&P DJI

With the S&P DJI ESG Scores, a company is only penalized if more than half of its peers have disclosed the relevant information and it has not.



ESG Scores, a company is only penalized if more than half of its peers

have either responded with or disclosed the relevant information where it

has not. This helps to gauge whether a company is lagging behind the rest

of its industry on ESG. So while SAM ESG Scores are especially useful for

companies to benchmark themselves against their peers on absolute

performance on ESG topics, S&P DJI ESG Scores are more suitable for

broad investment portfolio and index construction.

Exhibit 12.1: Example S&P DJI Scores for S&P Global from SPICE Platform

Source: S&P Dow Jones Indices LLC. Data as of Sept. 13, 2019. Chart is provided for illustrative purposes.

13. HOW TO USE THE DATA

Investors integrate ESG considerations in different ways, including universe

selection, investment screening, best-in-class analysis, integrated company

valuation, optimizing, tilting, or reweighting a portfolio, as well as for simply

identifying and measuring exposures. New entrants may prefer to use

headline ESG scores to identify suitable investments, while seasoned ESG

investors might have their own views regarding the relevance of certain

sustainability criteria over others. It is not uncommon for investors to

consume and comingle multiple ESG data sources to create derived data

metrics and internal sustainability rankings within their investment universe.

As a result, demand appears to be growing for transparency and granularity

of ESG data for a variety of applications. As highlighted in Exhibit 6.2, we

offer a spectrum of ESG data points, from the headline score to as many as

27 industry-specific criteria, giving investors the flexibility to manipulate the

data or integrate them immediately “as is” for a turnkey ESG data solution.

Investors integrate ESG data in different ways including universe selection, investment screening, and optimizing, tilting, or reweighting a portfolio. S&P DJI offers a variety of ESG indices to accommodate diverse investment objectives… …but in all cases the methodology and objective of the indices are public and transparent.



14. CONCLUSION

The sustainable investment industry has grown significantly in recent years,

in part driven by the better availability and quality of corporate sustainability

data. However, myriad standards, guidelines, and conventions around

ESG integration approaches, with occasionally conflicting objectives, can

sometimes lead to confusion among investors, particularly when it comes to

selecting an ESG index or data provider. To meet these needs, S&P DJI

offers a spectrum of ESG benchmarks for diverse investment and ESG

integration objectives, with fully transparent methodologies in all cases.

Our ESG data offering is also fully transparent and flexible to inform

individual investor needs. Unlike newer ESG datasets, S&P DJI ESG

Scores unleash more than two decades of sustainable investment decision-

making experience by world-renowned ESG experts, RobecoSAM. Driven

by one of the most robust and comprehensive surveys of corporate

sustainability performance in the world, the tried and tested S&P DJI ESG

data gives unparalleled insight into the most financially material and

relevant ESG issues for all industries.

We offer a spectrum of ESG data points from the headline score to as many as 27 individual criteria… …giving investors the transparency and flexibility to manipulate the data as they see fit, or integrate them immediately “as is” for a turnkey ESG data solution.



APPENDIX A: Risk and Returns of the S&P 500 ESG Index

Exhibit A.1: Performance of the S&P 500 ESG Index and S&P 500

Exhibit A.2: Performance of the S&P 500 ESG Index and S&P 500

CATEGORY S&P 500 S&P 500 ESG INDEX

Five-Year Annualized Total Returns (%) 11.70 11.94

Five-Year Standard Deviation (%) 11.98 11.95

Five-Year Tracking Error (%) - 0.76

ESG Score Improvement (%) - 25.45

Source: S&P Dow Jones Indices LLC. Data as of Dec. 31, 2019. Index performance based on total returns in USD. Past performance is no guarantee of future results. Chart and table are provided for illustrative purposes and reflect hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with back-tested performance.

-

50

100

150

200

250

300

350

400

Ap

ril 2010

Ap

ril 2011

Ap

ril 2012

Ap

ril 2013

Ap

ril 2014

Ap

ril 2015

Ap

ril 2016

Ap

ril 2017

Ap

ril 2018

Ap

ril 2019

Retu

rns

S&P 500 S&P 500 ESG Index



APPENDIX B: MSA Methodology

Exhibit B.1: The Methodology of the MSA




APPENDIX C: Comparison of SAM ESG Scores and S&P DJI ESG Scores

Exhibit C.1: Comparison of SAM ESG Scores and S&P DJI ESG Scores

CATEGORY SAM ESG SCORES S&P DJI ESG SCORES

Underlying Research Methodology SAM CSA

Calculation Agent SAM

Review Frequency Annually (with quarterly controversy updates)

Data Collection Direct company participation through CSA or assessment of publicly available data by SAM analysts

Quality Assurance Detailed, multi-tiered quality control process according to SAM guidelines. Annual independent third-party assurance on research and quality control process

Company Controversy and Risk Screening

SAM MSA

Question Scoring Aggregation of data points by predefined CSA methodology. Unanswered questions are given a score of 0.

Aggregation of data points by predefined CSA methodology. Unanswered questions that are not mandatory are not scored. Unanswered mandatory questions are given a score of 0. Question-level scores are normalized within industry.

Question Weights Predefined industry CSA weights determined by SAM, based on financially materiality of sustainability factors to the specific industry

Criteria Scoring Question scores are aggregated to a criteria score.

Normalized question scores are aggregated to a criteria score. Weights of unanswered questions are redistributed among other questions within criteria, if they are not mandatory, to maintain criteria weights.

Criteria Weights Predefined industry CSA weights determined by SAM, based on financially materiality of sustainability factors to the specific industry.

Dimension Scoring Criteria scores are aggregated to a dimension score.

Criteria scores are aggregated to a dimension score. If all questions in a criteria are unanswered, the weight of the criteria is redistributed among other criteria within a dimension (environmental, social, or governance)

Dimension Weights Dimension weights are always preserved according to the original SAM weighting scheme, irrespective of how criteria questions are answered.

Total ESG Score Absolute score resulting from the weighted sum of all criteria and dimension scores.

Absolute score resulting from the weighted sum of all criteria and dimension scores. Relative total ESG score then calculated and normalized within each industry.

Score Type Absolute Relative (scores are normalized within assessed SAM industry).

Source: S&P Dow Jones Indices LLC and RobecoSAM. Table is provided for illustrative purposes.



APPENDIX D: Measuring the Value of Intangibles

Exhibit D.1: Components of the S&P 500 Value

Source: Ocean Tomo, LLC. Data as of Jan. 1, 2015. Chart is provided for illustrative purposes.

17%32%

68%80% 87%

83%68%

32%20% 13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1975 1985 1995 2005 2015*

Weig

ht

Intangible Assets Tangible Assets



PERFORMANCE DISCLOSURE

The S&P 500 ESG Index was launched January 28, 2019. All information presented prior to an index’s Launch Date is hypothetical (back-tested), not actual performance. The back-test calculations are based on the same methodology that was in effect on the index Launch Date. However, when creating back-tested history for periods of market anomalies or other periods that do not reflect the general current market environment, index methodology rules may be relaxed to capture a large enough universe of securities to simulate the target market the index is designed to measure or strategy the index is designed to capture. For example, market capitalization and liquidity thresholds may be reduced. Complete index methodology details are available at www.spdji.com. Past performance of the Index is not an indication of future results. Prospective application of the methodology used to construct the Index may not result in performance commensurate with the back-test returns shown.

S&P Dow Jones Indices defines various dates to assist our clients in providing transparency. The First Value Date is the first day for which there is a calculated value (either live or back-tested) for a given index. The Base Date is the date at which the Index is set at a fixed value for calculation purposes. The Launch Date designates the date upon which the values of an index are first considered live: index values provided for any date or time period prior to the index’s Launch Date are considered back-tested. S&P Dow Jones Indices defines the Launch Date as the date by which the values of an index are known to have been released to the public, for example via the company’s public website or its datafeed to external parties. For Dow Jones-branded indices introduced prior to May 31, 2013, the Launch Date (which prior to May 31, 2013, was termed “Date of introduction”) is set at a date upon which no further changes were permitted to be made to the index methodology, but that may have been prior to the Index’s public release date.

The back-test period does not necessarily correspond to the entire available history of the Index. Please refer to the methodology paper for the Index, available at www.spdji.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations.

Another limitation of using back-tested information is that the back-tested calculation is generally prepared with the benefit of hindsight. Back-tested information reflects the application of the index methodology and selection of index constituents in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. For example, there are numerous factors related to the equities, fixed income, or commodities markets in general which cannot be, and have not been accounted for in the preparation of the index information set forth, all of which can affect actual performance.

The Index returns shown do not represent the results of actual trading of investable assets/securities. S&P Dow Jones Indices LLC maintains the Index and calculates the Index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor may pay to purchase the securities underlying the Index or investment funds that are intended to track the performance of the Index. The imposition of these fees and charges would cause actual and back-tested performance of the securities/fund to be lower than the Index performance shown. As a simple example, if an index returned 10% on a US $100,000 investment for a 12-month period (or US $10,000) and an actual asset-based fee of 1.5% was imposed at the end of the period on the investment plus accrued interest (or US $1,650), the net return would be 8.35% (or US $8,350) for the year. Over a three year period, an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.10%, a total fee of US $5,375, and a cumulative net return of 27.2% (or US $27,200).



GENERAL DISCLAIMER

Copyright © 2020 S&P Dow Jones Indices LLC. All rights reserved. STANDARD & POOR’S, S&P, S&P 500, S&P 500 LOW VOLATILITY INDEX, S&P 100, S&P COMPOSITE 1500, S&P MIDCAP 400, S&P SMALLCAP 600, S&P GIVI, GLOBAL TITANS, DIVIDEND ARISTOCRATS, S&P TARGET DATE INDICES, GICS, SPIVA, SPDR and INDEXOLOGY are registered trademarks of Standard & Poor’s Financial Services LLC, a division of S&P Global (“S&P”). DOW JONES, DJ, DJIA and DOW JONES INDUSTRIAL AVERAGE are registered trademarks of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks together with others have been licensed to S&P Dow Jones Indices LLC. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices LLC, S&P, Dow Jones or their respective affiliates (collectively “S&P Dow Jones Indices”) do not have the necessary licenses. Except for certain custom index calculation services, all information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties and providing custom calculation services. Past performance of an index is not an indication or guarantee of future results.

It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. S&P Dow Jones Indices does not sponsor, endorse, sell, promote or manage any investment fund or other investment vehicle that is offered by third parties and that seeks to provide an investment return based on the performance of any index. S&P Dow Jones Indices makes no assurance that investment products based on the index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor, and S&P Dow Jones Indices makes no representation regarding the advisability of investing in any such investment fund or other investment vehicle. A decision to invest in any such investment fund or other investment vehicle should not be made in reliance on any of the statements set forth in this document. Prospective investors are advised to make an investment in any such fund or other vehicle only after carefully considering the risks associated with investing in such funds, as detailed in an offering memorandum or similar document that is prepared by or on behalf of the issuer of the investment fund or other investment product or vehicle. S&P Dow Jones Indices LLC is not a tax advisor. A tax advisor should be consulted to evaluate the impact of any tax-exempt securities on portfolios and the tax consequences of making any particular investment decision. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice. Closing prices for S&P Dow Jones Indices’ US benchmark indices are calculated by S&P Dow Jones Indices based on the closing price of the individual constituents of the index as set by their primary exchange. Closing prices are received by S&P Dow Jones Indices from one of its third party vendors and verified by comparing them with prices from an alternative vendor. The vendors receive the closing price from the primary exchanges. Real-time intraday prices are calculated similarly without a second verification.

These materials have been prepared solely for informational purposes based upon information generally available to the public and from sources believed to be reliable. No content contained in these materials (including index data, ratings, credit-related analyses and data, research, valuations, model, software or other application or output therefrom) or any part thereof (“Content”) may be modified, reverse-engineered, reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written permission of S&P Dow Jones Indices. The Content shall not be used for any unlawful or unauthorized purposes. S&P Dow Jones Indices and its third-party data providers and licensors (collectively “S&P Dow Jones Indices Parties”) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Dow Jones Indices Parties are not responsible for any errors or omissions, regardless of the cause, for the results obtained from the use of the Content. THE CONTENT IS PROVIDED ON AN “AS IS” BASIS. S&P DOW JONES INDICES PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Dow Jones Indices Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of the Content even if advised of the possibility of such damages.

S&P Global keeps certain activities of its various divisions and business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain divisions and business units of S&P Global may have information that is not available to other business units. S&P Global has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

In addition, S&P Dow Jones Indices provides a wide range of services to, or relating to, many organizations, including issuers of securities, investment advisers, broker-dealers, investment banks, other financial institutions and financial intermediaries, and accordingly may receive fees or other economic benefits from those organizations, including organizations whose securities or services they may recommend, rate, include in model portfolios, evaluate or otherwise address.

The Global Industry Classification Standard (GICS®) was developed by and is the exclusive property and a trademark of S&P and MSCI. Neither MSCI, S&P nor any other party involved in making or compiling any GICS classifications makes any express or implied warranties or representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of their affiliates or any third party involved in making or compiling any GICS classifications have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

RobecoSAM AG and/or its successors or affiliates own certain intellectual property rights with respect to the Dow Jones Sustainability Indexes, which rights have been licensed to S&P Dow Jones Indices for use.

RobecoSAM AG, Josefstrasse 218, 8005 Zurich, Switzerland its related and affiliated companies (“SAM”) provides ESG research data derived from its proprietary corporate sustainability assessment for use with the S&P Dow Jones Indices. SAM shall not be liable in relation to any direct, indirect or consequential damages in relation to the S&P Dow Jones Indices offering nor any application of SAM ESG research data. SAM disclaims all warranties, expressed or implied, including, but not limited to, implied warranties of merchantability and fitness for any particular purpose.

discover material insights with s&p dji esg data · available—giving investors the...

Documents