Index provider S&P Dow Jones Indices (S&P DJI) and Japan Exchange Group (JPX) announced today the launch of the S&P/JPX 500 ESG Score Tilted Index Series, a suite of indices aimed at offering exposure to improved ESG characteristics for Japan’s TOPIX 500.
The new index series offers a range of ESG score tilting, with various levels of constituent weight changes away from the parent index weightings based on the desired level of ESG score improvement.
S&P DJI stated that at each rebalancing, the indices’ constituents’ weights are tilted away from free-float market capitalization in a way that companies with higher or lower S&P DJI ESG scores are over or under-weighted, respectively. The indices employ scaling factors that, when applied to the weighting scheme provide magnitudes of tilting, with higher scaling factors implying that the tilted index would have higher S&P DJI ESG score improvement, as well as greater differences in constituent weights relative to the parent index.
Calculated over the past ten years, the index series on average achieves between 12% to 40% S&P DJI ESG score improvement with 0.5% to 1.5% annual tracking error against the TOPIX 500.
The S&P DJI ESG Scores are derived from the S&P Global ESG Scores and built from the S&P Global Corporate Sustainability Assessment. Additionally, the indices exclude those who are poorly aligned with the UN Global Compact principles, or those who are involved in ESG controversies.
Kiyota Akira, CEO of JPX said:
“JPX joined the Sustainable Stock Exchanges (SSE) initiative in December 2017. In recent years, JPX has supported listed companies in their voluntary efforts to disclose ESG information, including through publication of the Practical Handbook for ESG Disclosure and the launch of the JPX ESG Knowledge Hub in 2020. Under these circumstances, we are delighted to collaborate with S&P Dow Jones Indices to further promote ESG-focused activities through the provision of a new composite ESG index series.”
According to S&P DJI, the new index series addresses the need from individual and institutional investors to enhance ESG exposure while maintaining a broad and diversified universe to invest in, and also helps encourage Japanese companies to improve the tracking of ESG performance against industry peers.
Dan Draper, CEO of S&P Dow Jones Indices said:
“S&P Dow Jones Indices is proud of its longstanding collaboration with the Japan Exchange Group. We are privileged to continue evolving and expanding our partnership with the exchange to respond to the growing awareness and appetite amongst global investors to incorporate environmental, social and governance principles in their decision-making processes. This exciting development underscores our joint commitment to help promote and advance sustainability in financial markets in Japan, Asia and globally from the lens of independent indexing.”