Fund ESG Weighted
Average Metric (WAM)
Methodology
S&P Global Sustainable1April 2024

Fund ESG Weighted Average Metric (WAM)

Contents
Introduction ................................................................................................ 3
Methodology Overview ............................................................................. 3
Monitoring and Review ............................................................................. 7Updates ...................................................................................................... 7
S&P Global Sustainable1 Disclaimer ....................................................... 8

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2Fund ESG Weighted Average Metric (WAM)

Introduction
Fund Level Sustainability Analytics
Sustainability data provides financial institutions, corporations, and governments with expansive
insight on business risk, opportunity, and impact as we work towards a sustainable future.
To empower financial institutions to unlock the power of sustainability insights, it is important thatthese data points can be associated with the issuers of financial instruments, across various asset
classes. Mapping sustainability data, which is mainly researched at the parent or ultimate parent
level, to subsidiaries provides an important link to equity and fixed income securities. Financial
products, such as mutual funds and exchange traded funds (ETFs), may be analysed based on thesustainability data of the constituents of an investment vehicle.
This may provide financial institutions with tools to be able to analyse companies and deploy
capital to enable a sustainable future.
It is important to note that these analytical metrics are not intended to be a score or a rating at thefund or financial security level. The creation of these metrics is systematic, and no expert opinionis incorporated into aggregation of the underlying sustainability data. It is critical to consider theunderlying data points to complete a holistic assessment of the relevant portfolio companies.
Users of these analytics may choose to create their own methodology using the Portfolio Analytics
tool within S&P Capital IQ Pro.

Methodology Overview
Financial Instrument Scope
Several assumptions are made in the computation of fund and security level sustainability
analytics, using company level data:
1. Only physical positions are considered, synthetic positions are excluded.
2. Cash Equity and Corporate Fixed Income asset classes are only considered for the analysis
of mutual funds and ETFs.
3. A subsidiary may inherit or use a sustainability data point from a parent or ultimate parentcompany, as a proxy.
4. Long funds only, short positions should be excluded and not be assessed.

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Fund ESG Weighted Average Metric (WAM)

Materiality
The Fund ESG Weighted Average Metric (WAM) calculation
Scores, as described in the following sections.

main inputs are the S&P Global ESG

The S&P Global ESG Scores consider double materiality as the foundation of the methodology. For
more information, please see the S&P Global ESG Scores page.

Mapping of ESG Scores to Financial Instruments
The coverage of ESG scores is limited when compared to the investible universe of companies.
Hence, it is important to establish valid relationships to determine when an ESG score may be
applicable to other companies, for example inherited from a parent company. For this purpose, theS&P Global Market Intelligence corporate hierarchy data has been used.
The inheritance of an ESG score from a parent company to a subsidiary is generally permitted when
all the following conditions are met:
1. The parent company is the majority owner (with >50% ownership) of the subsidiary, and is
the controlling parent.
2. The subsidiary is not a distinct operating entity
independently of the parent company and reports under the same reports.
3. The subsidiary is not a fund.
4. The parent company has an ESG score that was researched in the past three years.
Figure 1: A worked example: ESG ScoresABCD••••

A and C have ESG scores.
B is a subsidiary of A, so can inherit the ESG score of A. This is because A has control over
the operations of B and more than 50% ownership.
C is a distinct operating entity from A, and therefore does not inherit A's score. It is
researched independently and has its own ESG score.
D is a subsidiary of C, so can inherit the ESG score of C.

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4Fund ESG Weighted Average Metric (WAM)

This inheritance logic applies for the Fund ESG WAM aggregation logic.

Preparing the Portfolio
Several steps are taken to prepare the data for computation:

1. Holdings without sustainability data point coverage are dropped
2. The portfolio is re-weighted such that the portfolio weights sum to 100%, per thebelow formula:
𝑤𝑤𝑛𝑒𝑤,𝑖 = ∑𝑛 𝑜𝑙𝑑,𝑖𝑤
𝑖=1𝑓𝑜𝑟 𝑖 ℎ𝑜𝑙𝑑𝑖𝑛𝑔𝑠 𝑖𝑛 𝑎 𝑝𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 𝑡ℎ𝑎𝑡 ℎ𝑎𝑣𝑒 𝑠𝑢𝑠𝑡𝑎𝑖𝑛𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑑𝑎𝑡𝑎𝑜𝑙𝑑,𝑖A worked example: ESG Scoresa. A portfolio has the following composition, as per its latest filing.
Holding
Stock 1
Stock 2
Stock 3
Stock 4
Stock 5

Portfolio Weight (%)
50%20%25%3%2%

ESG Score Available?
YYYYN

ESG Score80706050-b. To conduct fund level sustainability analytics, the holding with no ESG score is
dropped
Holding
Stock 1
Stock 2
Stock 3
Stock 4

Portfolio Weight
Before Reweight(%)
50%20%25%3%Portfolio Weight
After Reweight
(%)
51.0%
20.4%
25.5%
3.1%

ESG Score
Available?
YYYY

ESG Score
80
70
60
50c. The reweighted portfolio weight is used to calculate analytics for ESG score fundlevel analytics

Weighted Average Metric (WAM) Calculation
S&P Global uses a simple weighted average as the default metric to provide an indication of thesustainability profile for the issuing companies within a portfolio.

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5Fund ESG Weighted Average Metric (WAM)

In the case of ESG scores, the following formula is used to calculate the fund level metric:

𝐹𝑢𝑛𝑑 𝐸𝑆𝐺 𝑊𝐴𝑀 =∑𝑛𝑖=1 𝑤𝑛𝑒𝑤,𝑖 𝐸𝑆𝐺𝑖𝑓𝑜𝑟 𝑖 ℎ𝑜𝑙𝑑𝑖𝑛𝑔𝑠 𝑖𝑛 𝑎 𝑝𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 𝑡ℎ𝑎𝑡 ℎ𝑎𝑣𝑒 𝑠𝑢𝑠𝑡𝑎𝑖𝑛𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑑𝑎𝑡𝑎
∑𝑛𝑖=1 𝑤𝑛𝑒𝑤,𝑖Where 𝑤𝑖 is the weight of the position in the reweighted portfolio and 𝐸𝑆𝐺𝑖 is the ESG scoreassociated with the relevant financial security.

The same calculation happens to calculate the Dimension level metrics:
𝐹𝑢𝑛𝑑 𝐸𝑆𝐺 𝑊𝐴𝑀𝐷 =∑𝑛𝑖=1 𝑤𝑛𝑒𝑤,𝑖 (𝐸𝑆𝐺𝐷,𝑖 ∗ 𝑤𝐷,𝑖 )∑𝑛𝑖=1 𝑤𝑛𝑒𝑤,𝑖For holding i in a portfolio, that has sustainability data, and dimension D between E, S and G.
Where 𝑤𝑖 is the weight of the position in the reweighted portfolio, 𝐸𝑆𝐺𝐷,𝑖 is the ESG score ofdimension D associated with the relevant financial security and 𝑤𝐷,𝑖 is the weight ofdimension D for holding i.

A worked example: ESG Scores
HoldingPortfolio Weight
Before Reweight(%)

Stock 1
Stock 2
Stock 3
Stock 450%
20%25%3%Portfolio Weight
After Reweight
(%)
51.0%
20.4%
25.5%
3.1%

ESG Score

80
70
6050
TOTAL

Contributionof Holding
Fund ESG
WAM
40.82
14.29
15.31
1.53
71.94

In the case of the portfolio used in the example, the portfolio weight after rebalancing is multipliedby the ESG score of the position. The sum of these metrics creates a Fund ESG Weighted Average
Metric (WAM) of 71.94 for the fund.
Users of these analytics may choose to create their own methodology and relevant metrics using
the Portfolio Analytics tool within S&P Global Capital IQ Pro, to suit their individual requirements. A
wide selection of equity mutual funds, fixed income mutual funds and ETFs can be selected.
Alternatively, a portfolio can be uploaded or created to compute sustainability fund and security
level analytics.

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Fund ESG Weighted Average Metric (WAM)

Monitoring and Review
All new methodologies and any material changes to existing methodologies are reviewed andapproved by an independent methodology governance committee.

Updates
We periodically review our methodology as appropriate.

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Fund ESG Weighted Average Metric (WAM)

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