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A Tailored Measurement of Emerging Markets: The S&P Emerging Ex-China BMI

The Importance of Dividends

The S&P 500 ESG Index: 5 Years of Defining Core through an ESG Lens

Sustainable Core in Fixed Income: iBoxx Corporates SRI Screened and ESG Indices

Carbon Accounting for Climate Aware Commodity Indexing

A Tailored Measurement of Emerging Markets: The S&P Emerging Ex-China BMI

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Hector Huitzil Granados

Senior Analyst, Global Equities

S&P Dow Jones Indices

Executive Summary

The S&P Emerging Ex-China BMI (Broad Market Index) offers a unique measurement of emerging markets by excluding Chinese equities, which tend to dominate many market-capitalization-weighted indices.  Since its inception in 1989, the S&P Global BMI Series has provided benchmarks for performance measurement, asset allocation and index replication.  This paper explores the unique characteristics of the S&P Emerging Ex-China BMI and its distinct risk/return profile.

The S&P Emerging BMI, a member of the S&P Global BMI Series, provides a reliable benchmark for emerging market equities.  The predominance of Chinese equities in emerging markets translates into a sizable weight in most float-adjusted market-cap-weighted indices, so the S&P Emerging Ex-China BMI was launched to meet the need for a benchmark for emerging market equities that excludes China.  In this paper, we will learn more about the index’s distinct risk/return profile and delve into how its characteristics provide a unique perspective on emerging market equities.

Index Characteristics

The S&P Emerging Ex-China BMI spans 22 markets and over 3,000 large-, mid- and small-cap constituents.  It follows the same methodology as its benchmark, the S&P Emerging BMI, with the added exclusion of companies domiciled in China, which has the largest market weight and constituent count in the benchmark.  Additionally, due to the regional market classification framework used by S&P Dow Jones Indices (S&P DJI), our emerging market benchmarks exclude constituents domiciled in South Korea as this market is classified as developed, a status it has held since 2001.  This is an important characteristic, as a comparable competitor index—the MSCI Emerging Markets ex China—classifies South Korea as an emerging market.  It is worth noting that every year S&P DJI conducts a complete review of all regional markets included in its global equity benchmarks to determine if current classifications are accurate or if a market consultation is appropriate to reevaluate their status.  Quantitative and qualitative criteria are employed alongside global investor feedback when evaluating market status, and final decisions are made by the S&P Dow Jones Indices Committee based on criteria and conditions, feedback from clients ahead of formal consultations and, finally, the results of the consultations.

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The Importance of Dividends

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Jason Ye

Director, Factors and Thematics Indices

S&P Dow Jones Indices

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Izzy Wang

Senior Analyst, Factors and Dividends

S&P Dow Jones Indices

Introduction

The percentage of dividends as a part of personal income has steadily increased over time, making dividends an important source of income.  Dividend income has climbed from 2.68% in Q4 1980 to 7.88% in Q2 2024, whereas interest income has declined from 14.58% to 7.61% over the same period (see Exhibit 1).

Exhibit 1: Dividends and Interest as Percent of Personal Income

Since 1936, dividends have accounted for more than one-third of the total equity return of the S&P 500®, with capital appreciation making up the other two-thirds.  Exhibits 2 and 3 illustrate the historical importance of dividends.

Exhibit 2: Percentage of Annualized Total Return from Dividends for the S&P 500

Exhibit 3: Dividends and the Compounding Effect

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The S&P 500 ESG Index: 5 Years of Defining Core through an ESG Lens

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Stephanie Rowton

Director, Head of Sustainability Indices EMEA

S&P Dow Jones Indices

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María Sánchez

Director, Sustainability Index Product Management, U.S. Equity Indices

S&P Dow Jones Indices

Launched on Jan. 28, 2019, the S&P 500® ESG Index marked a significant milestone in sustainable investing.  While the S&P 500 ESG Index leverages the strength, liquidity and power of the S&P 500, it also incorporates meaningful ESG factors.  As a result, the index has shifted the perception of ESG indices from mere reporting tools to integral components used for investment strategies.

Intentionally broad, the S&P 500 ESG Index includes over 300 companies from the underlying S&P 500 and seeks to reflect many of the attributes of the S&P 500 itself to offer benchmark-like performance, while providing an improved ESG profile.  This paper outlines the characteristics of the S&P 500 ESG Index that have appealed to investors, including:

  • The easy-to-understand and transparent methodology behind the index;
  • The index’s historically similar risk-adjusted performance profile to the S&P 500; and
  • Improved ESG characteristics when compared with the S&P 500.

Along with the S&P 500 ESG Index, S&P Dow Jones Indices (S&P DJI) offers a range of indices that consider different levels of conviction on the integration of ESG factors, including the S&P 500 ESG Leaders Index and the S&P 500 ESG Elite Index.  As a result, the S&P ESG Index Methodology can be utilized by a wide range of market participants to help them achieve their objectives.

Ecosystem

Since its launch in January 2019, the S&P 500 ESG Index has experienced significant growth in investment products tied to it, as shown in Exhibit 1.  This broad ecosystem surrounding the S&P 500 ESG Index serves as a foundation for various financial products including exchange-traded funds (ETFs), exchange-traded derivatives (ETDs), mutual funds, insurance products and structured products.  ETDs encompass futures contracts, such as the E-mini S&P 500 ESG Index Futures offered by CME, as well as options contracts, such as options on the S&P 500 ESG Index offered by Cboe.  This ecosystem provides traders with meaningful market liquidity, which bolsters the index’s position as the most liquid sustainability index for U.S. equities.

The ecosystem of ETFs and ETDs provides investors with a range of advantages including increased liquidity, diversification benefits, risk management options and trading flexibility.

  • Enhanced liquidity: Having both ETFs and ETDs linked to the S&P 500 ESG Index, investors have multiple avenues to access the underlying assets. This can increase liquidity in the market, as investors can trade ETF shares or ETD contracts.
  • Diversification: The range of ETFs that utilize the S&P 500 ESG Index means investors can gain exposure to a basket of securities that integrate ESG scores, while ETDs allow investors to gain exposure synthetically, through derivative contracts. This combination can help investors achieve a diversified portfolio with an ESG lens.
  • Risk management: ETDs can be used for effective risk management, such as hedging against market fluctuations or managing portfolio risk.
  • Trading flexibility: Having both ETFs and ETDs linked to the S&P 500 ESG Index provides investors with flexibility in terms of trading strategies and execution.

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Sustainable Core in Fixed Income: iBoxx Corporates SRI Screened and ESG Indices

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Paulina Lichwa-Garcia

Associate Director, Fixed Income Indices

S&P Dow Jones Indices

Introduction

ESG within fixed income indices continues to evolve and take shape, largely driven by the growing awareness of investors and the broad emergence of ESG datasets that allow market participants to express their preferences and fine-tune their exposures.  Demand and expression can vary significantly by region, and the evolving regulatory regime around ESG and sustainability remains integral to navigating the incorporation of sustainability considerations into fixed income strategies.

While customization remains a significant factor in fixed income markets, there is growing appetite for a consistent approach to integrating sustainability into benchmarks.  The increased need for sustainability considerations in certain regions combined with the evolving requirements from a regulatory perspective have resulted in a growing demand for more standardized solutions that are easily understood, while still addressing the sustainability needs of market practitioners in fixed income.

S&P DJI’s iBoxx Corporates SRI Screened and ESG Indices were developed and launched to provide a standardized approach for incorporating sustainability considerations into EUR, USD and GBP corporate bond indices.  This new set of indices can be used as-is or can be used as a foundational universe to develop customized solutions to cater to investors’ specific needs, swiftly and efficiently.

The underlying methodology for the iBoxx Corporates SRI Screened and iBoxx Corporates ESG Indices leverages that of the S&P 500® ESG Leaders Index by mirroring similar product involvement and baseline exclusions, while incorporating additional preferences for fixed income investors.

The suite of indices encompasses two series.

  1. iBoxx Socially Responsible Investing (SRI) Screened Indices
  2. iBoxx ESG Corporates Indices, which can be catered to different investor needs

The iBoxx SRI Screened Indices are a subset of the iBoxx Corporate ESG suite.  The key difference being that iBoxx Corporates ESG Indices filter for ESG risk scores in addition to SRI screens.

In this paper, we outline the defining characteristics of the newly launched indices and discuss use cases for fixed income investors looking for a sustainability expression that can be easily understood and efficiently applied.

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Carbon Accounting for Climate Aware Commodity Indexing

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Brian D. Luke

Senior Director, Head of Commodities, Real & Digital Assets

S&P Dow Jones Indices

Introduction

Commodities have largely remained outside the purview of environmental investment frameworks, creating a gap in investing across all asset classes.  The global investment landscape is witnessing a transformative shift toward sustainability, in part driven by increasing awareness of the environmental impact of commodity production and the clean energy transition.  According to the latest S&P GSCI® world production average, over 25 billion barrels of oil are produced each year.  Combining that with the S&P Global Trucost estimate that one barrel of oil produces over 400 kilograms of CO2 equivalent (kgCO2e), the total carbon emissions for oil are over 10 trillion kgCO2e.

Investors in commodities primarily access the market through derivatives, such as oil futures.  These derivatives serve as vital tools for commodity producers, consumers and investors.  This paper explores how index-based commodity investing could be seen through a sustainable investing lens and examines the challenges and opportunities in integrating environmental considerations across asset classes.  It also delves into the role of commodity derivatives in financial markets and outlines a framework for carbon accounting to measure environmental impact.  Additionally, it highlights how the S&P Global Commodity Environmental dataset can be leveraged to measure carbon intensity for commodity indices.

Finally, this paper highlights the significance of benchmarks for environmental investing, offering an introduction to the S&P GSCI Climate Aware as a forward-thinking approach to climate-focused commodity investments.  The S&P GSCI Climate Aware is a prominent example in the past quarter century of incorporating environmental, social and governance (ESG) considerations into leading benchmarks before policy makers and regulators adopt similar rules into investment practices (see Exhibit 1).

Carbon Accounting for Climate Aware Commodity Indexing: Exhibit 1

Looking at Commodities through a Sustainable Investing Lens

The paradox in sustainable commodity investing lies in the fact that while there are extensive proposals affecting sustainable investments in stocks and bonds, commodities—one of the largest contributors to environmental degradation—remain largely untouched.  Governments around the world have introduced several regulatory measures to enhance sustainable investing practices, but the scope of these regulations has mainly focused on equity and fixed income investment products.  The European Union (EU) has led the march toward transparency and accountability for investors, asset managers and companies.

Commodity production and consumption is considered one of the leading causes of environmental degradation. While the physical production of a commodity can have a direct impact on the environment, investing in commodity derivatives could be viewed in the same light as investing in equities and bonds.  Buying stock in a company that emits carbon isn’t the same as emitting the carbon oneself, but there is an association.  While such a throughline exists for stocks and bonds, financial instruments associated with commodities, like commodity derivatives, are not subject to specific sustainability regulations.  We will discuss two elements used to create sustainability metrics in a commodity index.  First, we look at the use of transparent data to measure the impact of commodity production, and second, the connection with the physical production of commodities and the financial instruments that support the commodities market.

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