S&P Dow Jones Indices gears up for major ESG expansion into water, waste, human rights etc.

Planned Trucost acquisition just one element as investor demand grows

Standard & Poor’s index business is gearing up for a major expansion of its ESG offering, launching products linked to water, waste, human rights and sustainable bonds, among others.
S&P Dow Jones Indices, which already has more than 150 sustainability indices, expects to launch more over the next 12 months to meet growing investor demand.
“Investors are increasingly interested in sustainability – especially in relation to environmental risks and opportunities,” said Martina Macpherson, S&P Dow Jones Indices’ head of sustainability, adding that the firm is currently working on multiple requests from investors for carbon-efficient strategies.
Former MSCI ESG marketing executive Macpherson took the reins at S&P DJI from Julia Kochetygova, who moved to Northern Trust.
S&P DJI has an existing water index in its thematic range – those indices that seek to capture the performance of a particular investment theme. Its constituents are identified as companies that provide solutions or services to help with water scarcity and other sustainability issues. Now, the firm is working on a risk-based ‘Supply and Demand’ index for water – looking at select companies across all sectors that are best positioned, through their business model and management, to deal with water scarcity challenges.
This is expected to be launched at the end of the year, alongside an Environmental Leaders product with a “more holistic” approach to natural capital: looking at water, waste and carbon in a single index for the first time.
Following that, Macpherson told RI she expects to expand the range to cover other aspects of natural capital, such as timber and forestry.
“Investors are starting to get to grips with these thematic concepts and link them up. As a result, passive managers are starting to be tasked with creating products to incorporate them,” Macpherson said.It comes as S&P DJI, through its UK arm, has submitted a legally-binding bid to acquire environmental data provider Trucost for £14m. Trucost has collaborated on around 30 of S&P’s existing Carbon Efficient indices. It also has a water-pricing tool, the Water Risk Monetizer, which it developed with resource-scarcity specialist Ecolab.

In addition to adding products to its environmental range, Macpherson told RI that its Carbon Efficient and Fossil-Fuel Free families were also likely to see new versions, to offer investors more choice around regions and sectors.
In response to the addition of guidelines for social bonds in the latest revision of the Green Bond Principles, and the rise in ‘sustainability bonds’, such as those issued by Starbucks, S&P DJI is also mulling a sustainability bond index.

Beyond environmental products, Macpherson said S&PDJI was considering expanding its “active” index strategies, including the JPX/S&P Capex & Human Capital index, which it developed with the Japanese Exchange Group and the Tokyo Stock Exchange earlier this year to measure the performance of Japanese companies that are proactively making investments in physical and human capital.
The widening may take the index global, she said, “given that human capital management features highly on the agenda for investors around the world”.
S&P DJI is also working on expanding its S&P Long-Term Value Creation Global Index range, which it also launched earlier this year, in partnership with the Canadian Pension Plan Investment Board and GIC, the Singapore wealth fund.
Constituents are selected based on sustainability criteria they must abide by for a minimum of three years, to “encourage companies to anticipate and manage current and future risks by focusing on [the] long term”.