S&P Dow Jones Indices has introduced a pair of environmental, social, and governance (ESG) indices based on its flagship US mid- and small-cap equity benchmarks.

Dan Draper, Chief Executive Officer of S&P Dow Jones Indices.

The S&P MidCap 400 ESG Index and S&P SmallCap 600 ESG Index are designed to closely replicate the risk and return profile of their underlying benchmarks, the S&P MidCap 400 and the S&P SmallCap 600 respectively, while providing a significant boost in ESG performance.

Together with the existing S&P 500 ESG Index, S&P DJI now offers ESG versions of its three headline US equity indices that combine to form the S&P 1500 Composite, covering 90% of US market capitalization.

Dan Draper, Chief Executive Officer of S&P Dow Jones Indices, commented: “We are proud to grow our core ESG indexing capabilities to cover the mid and small-cap markets. At S&P DJI, we continue to find more ways to promote sustainability in global financial markets and economies through our innovative indices and benchmarks.”

Reid Steadman, Managing Director and Global Head of ESG Indices at S&P DJI, added: “Since the launch of the S&P 500 ESG Index nearly two years ago, sustainability has become a top focus of not only investors but corporations as well. As we expand our global family of ESG benchmarks, one of our goals is to encourage companies to embrace the adoption and transparency of ESG factors. Our launch of mid-cap and small-cap ESG indices reflects that it’s no longer just the largest companies recognizing the need to better position themselves globally through sustainable business practices.”

Methodology

Companies involved in the production of controversial weapons, thermal coal, and tobacco are excluded as well as firms embroiled in ESG controversies and those that perform poorly in relation to the United Nations Global Compact Principles.

Constituents are then assigned ESG scores calculated by SAM, an ESG ratings firm recently acquired by S&P Global. ESG scores are based on SAM’s Corporate Sustainability Assessment which uses company-provided data, publicly available information, or a combination thereof.

Each index includes the companies with the highest ESG scores while targeting 75% of the market capitalization within each Global Industry Classification Standard (GICS) sector.

Constituents are weighted by float-adjusted market capitalization. Rebalancing occurs annually in April.

The indices have been launched at a time when investor interest in ESG products continues to soar. In 2020, assets under management tied to ESG ETFs nearly tripled from just under $60 billion to more than $170bn including flows of around $81bn, according to data compiled by S&P DJI. Mid-cap and small-cap ESG ETFs grew even faster with AUM increasing by more than 260% over the course of the year.