IN THIS LIST

Tracking the Full China Equity Opportunity Set with the S&P China BMI

Explaining the Outperformance of Net Zero Indices

Identifying and Implementing Net-Zero-by-2050 Strategies: A Case Study

Why Does the S&P 500® Matter to Japan?

Transition to Net Zero with the S&P PACT™ Indices (S&P Paris-Aligned & Climate Transition Indices)

Tracking the Full China Equity Opportunity Set with the S&P China BMI

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John Welling

Director, Global Equity Indices

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Michael Orzano

Senior Director, Global Equity Indices

Over the past two decades, the Chinese economy and equity markets have substantially increased in size and prominence. During this period, China embarked on a major transition from a manufacturing-led economy, reliant on the traditional industrial and banking sectors, to a more mature consumer and service-oriented economy. In parallel, the country’s equity market has become more diversified, as consumer and technology-oriented companies now represent a large share of China’s equity market.

Introduced in 1997, the S&P China Broad Market Index (BMI) is designed to represent the full investable opportunity set of Chinese equities. By maintaining eligibility for large, mid, and small caps, as well as all Chinese share classes, the index enjoys an advantage compared to several popular Chinese equity benchmarks that cover narrower segments of the market. Leveraging the well-established methodology used in the underlying S&P Global BMI, the framework is consistent, modular, and allows pairing with other global regions without gaps or overlaps.

In this overview we will cover the following key points.

  • As the world’s second-largest equity market and representing over 35% of emerging market equities, China is highly relevant to market participants, and has grown steadily over the past several decades.
  • Improved access to onshore-listed A-shares has allowed for greater inclusion in equity benchmarks, significantly increasing the investable opportunity set.
  • The S&P China BMI provides potential advantages over peer indices since it includes large-, mid-, and small-cap companies, A-shares, and offshore-listed companies, and it enjoys a long track record dating back to the mid-1990s.

CHINA MATTERS

Between Dec. 30, 1994, and Dec. 31, 2021, China's representation within global benchmarks grew considerably, increasing from less than a 0.1% share in the S&P Global BMI to nearly 4% today. Meanwhile, its share of emerging market benchmarks swelled to 35.5% of the S&P Emerging BMI (see Exhibit 1).

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Explaining the Outperformance of Net Zero Indices

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Ben Leale-Green

Associate Director, Research & Design, ESG Indices

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Barbara Velado

Senior Analyst, Research & Design ESG Indices

INTRODUCTION

The S&P PACT™ Indices (S&P Paris-Aligned & Climate Transition Indices) represent a sophisticated, multifaceted approach that aims to align with a 1.5°C scenario and net zero emissions by 2050 (see Exhibit 1).  The indices are also intended to meet the EU’s minimum standards for EU Climate Transition Benchmarks (CTBs) and EU Paris-Aligned Benchmarks (PABs) and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), with the goal of being as efficient as possible to allow for a broad, diversified index.  So, how have the indices performed?

Exhibit 1: The S&P PACT Index Methodology

PERFORMANCE

Across all regions tracked by the S&P PACT Indices, both the S&P Climate Transition (CT) Indices and S&P Paris-Aligned (PA) Indices have shown outperformance over their market-cap-weighted underlying benchmarks.  In Exhibit 2, we can see that the outperformance over the benchmarks was positive for every listed index since inception.

Exhibit 2: Strong Relative Performance Across Markets

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Identifying and Implementing Net-Zero-by-2050 Strategies: A Case Study

Typically, low-carbon indices have largely seen relative decarbonizations— improvements against the underlying index—but not Paris Agreement-aligned absolutely sustainable strategies. To be aligned with the Paris Agreement (i.e., a net zero scenario) and absolutely sustainable with regards to greenhouse gas (GHG) emissions, a strategy must align with a specified GHG emissions reduction pathway. To reach net zero by 2050, scientific consensus explains that 1.5°C scenarios would likely help to meet this goal, while 2°C scenarios would most likely reach net zero closer to 2070-2080 (see Exhibit 1).

Exhibit 1: 1.5°C Scenario Implies Net Zero by 2050; 2°C Scenario Implies
Net Zero by 2070-2080

While net zero alignment may be a key target, it isn’t the only climate or ESG concern faced by investors. The changing climate potentially exposes us to transition and physical risks, while other broader ESG factors may be ethically desirable, financially material, or both. Many of these ESG factors are uncorrelated, which can make it difficult to understand what the real goal is for a multifaceted ESG investing strategy. The question then becomes: how best to align with a targeted climate scenario and can this be done alongside other ESG objectives?

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Why Does the S&P 500® Matter to Japan?

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Priscilla Luk

Managing Director, Global Research & Design, APAC

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Tim Wang

Senior Analyst, Global Research & Design

The S&P 500 is a renowned benchmark for large-cap U.S. equities.  The index is designed to measure 500 leading companies and covers approximately 80% of investable market capitalization in the U.S. equity market.  As of year-end 2020, over USD 13.5 trillion was benchmarked to the S&P 500 alone, with indexed assets making up USD 5.4 trillion of this total. Exchange-traded products based on the S&P 500 have been cross-listed in various markets across the globe, but what creates the international appetite for U.S. equities, especially the S&P 500?

In this paper, we will:

  • Compare the S&P 500 to the leading equity benchmark in Japan;
  • Explore the significance of the S&P 500 in the global equity market; and
  • Compare S&P 500 performance to that of active U.S. large-cap funds.

COMPARISON OF THE S&P 500 AND THE TOPIX

The S&P 500 and the TOPIX are widely regarded as primary performance indicators for the U.S. and Japanese equity markets, respectively.  Both indices have been commonly used as benchmarks for investment in domestic stocks or equity funds for decades. However, the indices vary significantly due to the different economic landscapes and financial market developments they reflect.

The TOPIX consists of 2,000 domestic common stocks listed on the Tokyo Stock Exchange First Section, while the S&P 500 comprises 500 leading U.S. companies representing around 80% of the market cap of the U.S. equity market.  Index members for both indices are weighted by their free-float market capitalization.  Despite the fact that the number of S&P 500 members is only one-quarter of the number of TOPIX constituents, the float-adjusted market cap of the S&P 500 is 10 times that of the TOPIX.

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Transition to Net Zero with the S&P PACT™ Indices (S&P Paris-Aligned & Climate Transition Indices)

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Ben Leale-Green

Associate Director, Research & Design, ESG Indices

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Barbara Velado

Senior Analyst, Research & Design ESG Indices

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Mona Naqvi

Global Head of ESG Capital Markets Strategy

S&P Global Sustainable1

Backed by evidence from the UN Intergovernmental Panel on Climate Change (IPCC), ambition has grown to limit global temperature rise to 1.5°C since pre-industrial levels, reaching net zero by 2050.  Currently, 70% of global CO2 emissions are covered by net zero targets (IEA, 2021).

To date, climate-conscious investors have largely focused on reducing relative portfolio carbon exposure; however, a combination of new forward-looking datasets and index innovation is emerging.  Investors now have the choice to align with a scenario that may mitigate the most catastrophic impacts.  The European Union (EU) has defined minimum standards for the EU Climate-Transition Benchmarks (CTB) and EU Paris-aligned Benchmarks (PAB), both of which are absolutely 1.5°C and 2050 net zero compatible. Our S&P PACT Indices offer a sophisticated, but accessible, solution for investment product providers to incorporate these standards and further climate objectives, which will support investors to:

  1. Implement the objectives of the Paris Agreement and align investments with a 1.5°C trajectory toward achieving net zero emissions by 2050;
  2. Adopt a strategy intended to meet the minimum standards for EU CTBs and EU PABs and recommendations from the Task Force on Climate-related Financial Disclosures (TCFD)—accounting for the physical risks, transition risks, and opportunities arising from climate change; and
  3. Address other climate objectives in an efficient manner, while staying as close to the underlying index as possible with broad, diversified exposure.

    This paper underscores how the S&P PACT Indices could help investment product providers transition to a 1.5°C world and achieve other climate objectives, utilizing an accessible index construction.

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