Indices that integrate environmental, social, and governance (ESG) data are moving from the margins to the mainstream, as market participants increasingly seek to align their values with their investments. A new type of ESG index is emerging to facilitate this change in Chile: the S&P IPSA ESG Tilted Index. Jointly developed by S&P Dow Jones Indices (S&P DJI) and the Santiago Stock Exchange (BCS or Bolsa de Comercio de Santiago), this index not only highlights strong ESG companies, it also enables allocation to such companies while aiming to limit major risks relative to the market.
THE EVOLUTION OF ESG INDICES
In 1999, S&P DJI launched the first global ESG index, the Dow Jones Sustainability™ World Index (DJSI World). It includes the top 10% of companies, industry by industry, according to their ESG performance, as determined by the Corporate Sustainability Assessment (CSA) conducted by S&P Global. This groundbreaking index encouraged companies to incorporate many ESG factors in their decisions, extending them beyond short-term financial considerations.
In the years that followed, other indices, including regional versions of the DJSI World such as the DJSI Emerging Markets, were launched with this same philosophy in mind: to highlight best-in-class companies and thereby inspire firms to improve their ESG approaches in order to qualify for inclusion in these indices.
Though these indices have been successful and have indeed inspired companies to change in positive ways, aspects of their methodologies may present challenges for many investors. Some strategies can be too narrow for investors who want to remain broadly diversified. Though many high-conviction market participants use the narrow, best-in-class indices for investment, we saw a need for ESG indices more in line with the broader market, while providing a more sustainable portfolio of companies.