EXECUTIVE SUMMARY
- The S&P/ASX 200 ESG Index is designed to align investment objectives with environmental, social, and governance (ESG) values.
- It can serve as a benchmark as well as the basis for index-linked investment products. Historically, the index’s broad market exposure and industry diversification has resulted in a return profile similar to that of the S&P/ASX 200.
- The index uses the new S&P DJI ESG Scores (see page 4) and other ESG data to select companies, targeting 75% of the market capitalization of each GICS® industry group within the S&P/ASX 200.
- The S&P/ASX 200 ESG Index excludes tobacco, controversial weapons, and companies with low UN Global Compact (UNGC) scores. In addition, those with S&P DJI ESG Scores in the bottom 25% of companies globally within their GICS industry groups are excluded.
- Our methodology results in an improved composite ESG score compared with the S&P/ASX 200.
INTRODUCTION
Demand has increased for indices that are aligned with individual investment objectives and personal or institutional values. The S&P/ASX 200 ESG Index was designed with both of these needs in mind.
The S&P/ASX 200 ESG Index is broad and constructed to play a central role in an investment strategy, unlike many ESG indices that have preceded it, which were thematic or narrow in their focus. By targeting 75% of the S&P/ASX 200’s market capitalization, industry by industry, the S&P/ASX 200 ESG Index has historically offered industry diversification and a return profile in line with Australia’s leading benchmark.
Yet the composition of this new index is meaningfully different from that of the S&P/ASX 200 and more compatible with the values of ESG investors. Exclusions are made related to tobacco, controversial weapons, and alignment with UNGC principles. Furthermore, companies with low ESG scores relative to their industry peers around the world are also excluded. The result is an index suitable for investors moving ESG from the fringe of their investment structure to center stage.
