The S&P ESG Index family is the first global family of smart beta indices that is based purely on ESG research. Using RobecoSAM’s Smart ESG methodology to generate ESG factor scores, we apply a smart beta index methodology to construct a family of indices that are tilted towards more sustainable companies. The S&P ESG indices seek to achieve better risk-adjusted returns than traditional free-float market-cap-weighted indices by weighting components based on their ESG factor score and avoiding common factor biases such as size, region or sector.
The S&P ESG indices use a transparent and consistent construction methodology, taking diversification, capacity, and ease of replication into account. The S&P ESG index family is based on the globally renowned S&P Global 1200 index family, of which the S&P 500 is a member. The S&P Global 1200 is the starting point for the ESG tilted version, and each member of the ESG index family is based on the same components as its underlying S&P index.
Source: S&P Indices
The S&P ESG Indices use the RobecoSAM Smart ESG factor scores to over or underweight the index components according to their ESG percentile rank. Components of the underlying index are ranked from lowest to highest ESG factor score and weighted in proportion to the their percentile rank: the components with the highest ESG factor score receive the highest active weight relative to the underlying index, and those with the lowest score are decreased. No components are excluded from the underlying index, meaning that ESG is thoroughly integrated into the existing index.
Component weighting approach
The S&P ESG indices are rebalanced semi-annually, effective after the market close on the third Friday of March and September. The reference dates for the composition of the underlying index are the close of trading on the last business day of January and July, respectively. The reference dates for the GICS sector weights used to calculate ESG Factor Score weights are the close of trading on the last business day of February and August, respectively.
At each semi-annual rebalancing, each index is constructed based on constituents of the underlying S&P index as shown below. The indices are calculated using the divisor methodology used for all S&P Dow Jones Indices’ equity indices.
All S&P ESG indices are calculated in both price and total return versions and are disseminated in real time.