Financial data giant Bloomberg, perhaps best known in ETFs for its market-leading range of fixed income and commodity indices, has introduced a suite of US equity benchmarks with associated ESG versions.
Steve Berkley, Global Head of Bloomberg Indices.
The suite is headed up by the Bloomberg US Aggregate Equity Index, a free-float market-capitalization-weighted index representing approximately 99% of the US equity market.
This top-level index provides the stock universe from which other US equity indices are derived, including large-cap, large-cap value, large-cap growth, and large-cap high-yield iterations.
The Bloomberg US Large Cap Index consists of the 500 largest stocks from the aggregate universe, weighted by market capitalization. Given its constitution, it is effectively a generic alternative to S&P 500.
The Bloomberg US Equity Large Cap Value Index and Bloomberg US Equity Large Cap Growth Index take the large-cap universe and screen it for the 350 stocks with the highest exposure to value or growth factors, respectively, using four indicators: earnings yield, valuation, dividend yield, and growth. The indices are weighted by market capitalization.
The Bloomberg US Large Cap High Dividend Yield Index screens the same 500 large-cap stocks to ascertain the top 100 highest-yielding securities (excluding REITs) with constituents weighted in proportion to annual regular cash dividend.
Commenting on the new indices, Steve Berkley, Global Head of Bloomberg Indices, said, “Building equity index capabilities was a natural extension of our existing suite of fixed income, commodity, and currency indices. We are responding to requests from investors to offer comprehensive and competitive equity index solutions to help our existing index clients address their needs across asset classes.”
Environmental, social, governance
For the creation of the associated ESG indices, Bloomberg has partnered with State Street Global Advisors (SSGA), the asset manager behind SPDR ETFs, and the Sustainability Accounting Standards Board (SASB), a body that develops and disseminates sustainability accounting standards.
For these indices, the regular indices are essentially reweighted relative to SSGA’s ‘R-Factor’ metric, a proprietary score measuring the performance of a company’s business operations and governance as it relates to financially material ESG challenges facing the company’s industry.
The score draws on data from multiple ESG research providers (ISS-ESG, Sustainalytics, and Vigeo-EIRIS) and leverages the SASB framework to generate a unique ESG score for listed companies. At the core of score is a mapping algorithm that turns on metrics that are financially material across 77 industries and 17 regulatory regimes.
The ESG indices are available in two varieties (standard ESG and ‘Ex-Controversies’) and include large-cap, large-cap value, large-cap growth, and large-cap dividend iterations.
The Ex-Controversies indices utilize the same scoring and weighting methodology as the standard ESG indices but go a step further, eliminating companies with extreme event controversies or business lines involved in controversial weapons, civilian firearms, thermal coal extraction, or tobacco, and companies in violation of the principles of the United Nation’s Global Compact.
Janine Guillot, Director of Capital Markets Policy and Outreach at SASB, commented, “The Bloomberg SASB ESG index family is an innovative example of bringing SASB’s vision of materiality-based ESG investing to life. We have always viewed SASB standards as important market infrastructure and a valuable tool to help integrate ESG factors into investment decision making in a rigorous, scalable way.”
Rakhi Kumar, Head of ESG Investments and Asset Stewardship for SSGA, added, “We are pleased that Bloomberg has chosen R-Factor to power these ESG indices. We developed R-Factor using SASB’s framework to provide greater transparency to companies and investors about which financially material ESG issues are driving a company’s score. This transparency allows companies to know what to manage and disclose in order to improve their performance. Over time, this will bring better ESG data into the market, ultimately helping to build more sustainable markets.”
Whilst the new indices represent a marked intensification of Bloomberg’s ambitions in the equity indexing space, technically they are not its first foray into the equity asset class. Back in 2012, Bloomberg partnered with NYSE to roll out a series of clean energy sector indices tracking firms active in the wind energy, energy-smart technologies, and solar industries. The indices failed to gain traction, however, and have since been retired.