S&P Dow Jones Indices Introduces Two New Benchmarks to Measure Companies' Alignment with the United Nations' Sustainable Development Goals (SDG)
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Insights
With the introduction of the S&P 500 SDG Index and the S&P Global LargeMidCap SDG Index, there's a clear signal that sustainability is becoming a more integral part of investment strategies. These indices represent a significant shift from traditional financial metrics to a broader consideration of a company's social and environmental impact. For investors, this presents an opportunity to align their portfolios with their values without compromising on the breadth of market exposure.
However, the methodology of not focusing on the financial materiality of ESG factors could be a double-edged sword. While it ensures a pure focus on impact, it may overlook how sustainability efforts contribute to or detract from a company's financial performance. Over time, this could lead to a divergence in performance compared to traditional indices, which investors should monitor closely.
The launch of these indices is indicative of a growing demand for sustainable investment options. Companies included in these indices might see increased investor interest, which could potentially lead to a lower cost of capital for those companies. This is particularly relevant for companies whose operations and products directly contribute to the achievement of the UN's SDGs.
Yet, it's important to note that the indices' performance will depend on the market's overall adoption of sustainability as a value driver. If the market continues to prioritize short-term financial returns over long-term sustainability goals, the indices might underperform relative to their traditional counterparts. Investors should consider the potential for market sentiment shifts in their investment horizon.
The S&P DJI's approach to measuring a company's alignment with the UN's SDGs through Impact Cubed's data is innovative. It prioritizes the actual impact of a company's products and operations over traditional financial risk metrics. For ESG-focused investors, this can be a more accurate reflection of a company's contribution to sustainability goals.
However, one must be cautious about the potential lack of correlation between SDG alignment and financial performance. While this may appeal to impact investors, those with a dual mandate of impact and return may find the indices less attractive if they do not correlate with long-term financial performance. The success of these indices will largely depend on whether investors believe that SDG alignment will eventually translate into financial value.
This pair of SDG-focused indices are designed to offer market participants broad-based equity performance measurements and diverse exposures to companies that are collectively more aligned with the United Nations' 17 Sustainable Development Goals (SDGs).
Adopted by the UN's member countries in September 2015, the 17 SDGs were established to address the world's most critical and urgent environmental, social and governance challenges such as climate change; access to affordable and clean energy; industry, innovation and infrastructure; and decent work and economic growth amongst others.
From a performance benchmarking perspective, the S&P 500 SDG Index and the S&P Global LargeMidCap SDG Index utilize underlying data that does not focus on assessing the financial materiality of environmental, social and governance (ESG) factors for an industry or specific company. Instead, these indices leverage data intended to measure and reflect specific external impact that companies' products and activities are making on society and the environment, regardless of the financial materiality implications.
"S&P Dow Jones Indices is excited to bring to market these two new indices that offer market participants a unique and alternative way of tracking and measuring companies' alignment with specific UN sustainability targets. These indices utilize the S&P 500 Index and the S&P Global Large MidCap Index as their underlying parent and reference benchmarks for constituent screening and selection," said Jas Duhra, Global Head of Sustainability Indices at S&P DJI.
"With this approach, S&P DJI is offering broad-based sustainability performance measurement tools, one that is based on the S&P 500, which is the best single gauge of large-cap
S&P DJI licensed and utilized the Corporate SDG alignment data from Impact Cubed, a
The research and methodology on the Sustainable Development Goals (SDG) Indices is published and available at S&P DJI's website: https://www.spglobal.com/spdji/en/. More information on Impact Cubed can be seen: https://www.impactcubed.com/
ABOUT S&P DOW JONES INDICES
S&P Dow Jones Indices is the largest global resource for essential index-based concepts, data and research, and home to iconic financial market indicators, such as the S&P 500® and the Dow Jones Industrial Average®. More assets are invested in products based on our indices than products based on indices from any other provider in the world. Since Charles Dow invented the first index in 1884, S&P DJI has been innovating and developing indices across the spectrum of asset classes helping to define the way investors measure and trade the markets.
S&P Dow Jones Indices is a division of S&P Global (NYSE: SPGI), which provides essential intelligence for individuals, companies, and governments to make decisions with confidence. For more information, visit https://www.spglobal.com/spdji/en/.
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