Index Education

The Growing
S&P 500® ESG Index
Liquidity Ecosystem
Introduction

Contributors
Aran Spivey
Senior Analyst
Sustainability Indicesaran.spivey@spglobal.com
Igor Zilberman
Director
Index Capital Markets
igor.zilberman@spglobal.com
Michael Orzano
Senior Director
Global Equity Indicesmichael.orzano@spglobal.com

Since its launch in 2019, the S&P 500 ESG Index has emerged as animportant benchmark to measure the S&P 500 with an ESG lens.
While assets under management (AUM) based on the index havegrown steadily (see Exhibit 1), the S&P 500 ESG Index is also
notable for the liquidity associated with the growing network offinancial products based on it. Though dwarfed by the scale of the
S&P 500, the trading volumes based on the ecosystem of exchange
traded funds (ETFs), futures and options surrounding the S&P 500
ESG Index are unmatched by other offerings in the market,
bolstering the index’s position as the most liquid index thatincorporates ESG factors for U.S. equities.
Exhibit 1: ETF Assets Tracking the S&P 500 ESG Index
98

USD Billions

7
6
5
4
3
2
1
0

Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Sept. 29, 2023. Note that this analysis
tracks ETF assets under management to the standard S&P 500 ESG Index, and not variants. Chart isprovided for illustrative purposes.

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About the Index
As of Sept. 29, 2023, the S&P 500 ESG Index included 319 companies from the S&P 500.
The S&P 500 ESG Index seeks to reflect many of the attributes of the S&P 500 itself, while
incorporating ESG factors. This outcome is achieved by applying various business activity
exclusions and using S&P Global ESG scores to target 75% of the market capitalization ineach S&P 500 GICS® industry group. The index construction process is outlined in Exhibit 2.1
Exhibit 2: Overview of the S&P 500 ESG Index Methodology
S&P 500

Exclude companies involved in thermal coal (mining and electricity generation using coal poweredplants), tobacco, small arms, military contracting, controversial weapons and oil sands, as well ascompanies classified as non-compliant with UNGC, in addition to the bottom 25% of companies
within the GICS industry groups, as ranked by S&P Global ESG Scores.

Rank companies by S&P Global ESG Score. Select top-ranked constituents, targeting 75% of themarket cap in each S&P 500 GICS industry group, with the goal of achieving broadly sector neutral
exposure relative to the S&P 500.

Weight companies by float-adjusted market capitalization.

S&P 500 ESG Index
Source: S&P Dow Jones Indices LLC. Chart is provided for illustrative purposes.

The S&P 500 ESG Index has appealed to investors for a number of key reasons, including:1–

A historically similar risk/return profile to the S&P 500 with improved ESG characteristics;
and–An easy-to-understand, rules-based and transparent methodology.

For a full walkthrough of the index methodology, please see the published methodology and our education paper S&P 500 ESG Index:
Defining the Sustainable Core.

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Introduction and Growth of S&P 500 ESG Index
Derivatives
In November 2019, exchange-traded futures were launched based on the S&P 500 ESG
Index. Before the introduction of the futures, the only liquidity pool available to market
participants was represented by ETFs. However, the addition of these futures provided
additional liquidity. At the end of June 2020, ETFs that tracked the S&P 500 ESG Index had
about USD 1 billion in AUM and USD 2.65 billion in value traded, versus USD 8.8 billion ofnotional traded value (NTV) on derivatives. In comparison with ETF trading, the futures
provided a significant injection of liquidity into the marketplace. Futures trading volumes hit arecord in Q1 2022, with NTV rising to USD 26.7 billion as depicted in Exhibit 3.
Exhibit 3: NTV of S&P 500 ESG Index Futures over Time30

USD Billions

25
20
15
10
5
0

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Past performance is no guarantee of future results. Chart
is provided for illustrative purposes.

Although recent trading volumes have yet to surpass 2022 highs, open interest (OI) has
reached record levels this year, with investors possibly looking to use these products as a wayof achieving exposure to U.S. large-cap stocks with stronger ESG credentials.
Exhibit 4: Growth in OI of S&P 500 ESG Index Futures over Time
4.0

USD Billions

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Past performance is no guarantee of future results. Chart
is provided for illustrative purposes.

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Furthermore, exchange-traded options on the S&P 500 ESG Index were introduced to themarket in September 2020. Although trading volumes remain modest, these options provide
an additional avenue for expressing views on the index and represent a key part of thisgrowing ecosystem. 2023 has seen greater OI in these options.
Exhibit 5: S&P 500 ESG Index Options OI
80
70

USD Millions

60
50
40
30
20
10
0

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Past performance is no guarantee of future results. Chart
is provided for illustrative purposes.

Exhibits 6 and 7 further illustrate the role of futures in the broader S&P 500 ESG Index liquidity
ecosystem. As of September 2023, only about 30% of all exposure2 fell into the OI of futures,
but when it comes to liquidity, over 90% of notional value was traded through futures.
Exhibit 6: S&P 500 ESG ETF AUM and Exchange-Traded Derivative (ETD) Open Interest
12

USD Billions

10
8
6
4
2
0

S&P 500 ESG ETF AUM

S&P 500 ESG Index ETD OI

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Past performance is no guarantee of future results. Chart
is provided for illustrative purposes.

2

Exposure is defined as ETF AUM in USD + exchange-traded derivative open interest converted to USD.

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Exhibit 7: S&P 500 ESG (ETD versus ETF NTV)
Notional Traded Value

100%
80%
60%
40%
20%
0%

ETF NTVETD NTV

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Underlying values expressed are in USD billions. Past
performance is no guarantee of future results. Chart is provided for illustrative purposes.

A Comparative Lens
To appreciate this liquidity effect on the S&P 500 ESG Index, let us compare it to the U.S.
equity ESG index with the largest combined ETF AUM—the MSCI USA Extended ESG Focus
Index—which had USD 12.40 billion in ETF AUM as of September 2023.
Although the MSCI USA Extended ESG Focus Index has more ETF AUM tied to it than does
the S&P 500 ESG Index, the MSCI index doesn’t have ETDs that help expand its liquidity
ecosystem. As such, its YTD NTV through September 2023 was USD 23.5 billion, about onehalf of the NTV of the S&P 500 ESG Index’s total of USD 45.7 billion. In addition, the recent
trajectory of both asset and liquidity growth has been much more positive for the S&P 500
ESG Index in comparison to the MSCI index (see Exhibits 8 and 9).
Exhibit 8: ETF AUM on the S&P 500 ESG Index and the MSCI USA Extended ESG Focus
Index
30

USD Billions

25
20
15
10
5
0

S&P 500 ESG Index ETF AUM

MSCI USA Extended ESG Focus Index ETF AUM

Source: S&P Dow Jones Indices LLC, Morningstar. Data as of Sept. 29, 2023. ETF assets assessed are only those tracking the two indicesmentioned. Past performance is no guarantee of future results. Chart is provided for illustrative purposes.

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Notional Value Traded (Aggregatedin USD Billions)Exhibit 9: NVT (ETFs and ETDs) on the S&P 500 ESG Index and the MSCI USA Extended
ESG Focus Index
35
30
25
20
15
10
5
0

S&P 500 ESG Index

MSCI USA Extended ESG Focus Index

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Note that this compares ETF and ETD trading from the
S&P 500 ESG Index, and solely ETF trading on the MSCI USA Extended ESG Focus Index, as ETDs are not listed on the latter. Past
performance is no guarantee of future results. Chart is provided for illustrative purposes.

Trading volumes of S&P 500 ESG Index-linked products also compare favorably to the next
most actively traded suite of ESG index derivatives, which are based on several STOXXEuropean equity ESG indices. In fact, the NTV of the S&P 500 ESG Index has outpaced theaggregate trading value of all STOXX European ESG indices, combined with S&P DJI’s share
growing over the past two years (see Exhibit 10).
Exhibit 10: S&P 500 ESG Index Derivatives versus Stoxx ESG Derivatives3
Notional Value Traded (USD Billions)

30
25
20
15
10
5
0

S&P 500 ESG Index

STOXX ESG Indices

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023. Past performance is no guarantee of future results. Chart
is provided for illustrative purposes.

3

Note that indices included in this analysis are: S&P 500 ESG Index, EURO STOXX 50 ESG Index, STOXX Europe 600 ESG-X Index,
STOXX Europe ESG Leaders Select 30 Index and STOXX Europe Climate Impact Index

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Taking one step further back to see the entire global market, S&P 500 ESG Index ETD
volumes have held relatively firm when compared to all global ESG index-based ETDs. On
average, since the launch of the S&P 500 ESG Index futures, 40% of all ESG index derivatives
notional traded across the global market was based on the S&P 500 ESG Index.4

Conclusion
As sustainable investing has increased in popularity, a wide array of ESG indices entered themarket and gained traction either as benchmarks or as the basis for investable products.
However, the S&P 500 ESG Index stands out from the crowd due to the range of products andtrading activity around the index. With 18 ETFs listed in five markets5 across North America,
Europe and Asia, as well as actively traded ETDs accessible nearly 24 hours per day, the S&P
500 ESG Index has quickly developed a growing liquidity ecosystem unmatched by othercomparable ESG indices in the market.

4

Source: S&P Dow Jones Indices LLC, FIA, Bloomberg. Data as of Sept. 29, 2023.

5

Note this includes dual share class listings.

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ESG Indices Disclaimer
S&P DJI provides indices that seek to select, exclude, and/or weight index constituents based on, but not limited to, certain environmental,social or governance (ESG) indicators, or a combination of those indicators, including the following: environmental indicators (including theefficient use of natural resources, the production of waste, greenhouse gas emissions, or impact on biodiversity); social indicators (such as,
inequality and investment in human capital); governance indictors (such as sound management structures, employee relations, remunerationof staff, tax compliance, respect for human rights, anti-corruption and anti-bribery matters), specific sustainability or values-related company
involvement indicators (for example, production/distribution of controversial weapons, tobacco products, or thermal coal), or controversies
monitoring (including research of media outlets to identify companies involved in ESG-related incidents).
S&P DJI ESG indices use ESG metrics and scores in the selection and/or weighting of index constituents. ESG scores or ratings seek tomeasure or evaluate a company’s, or an asset’s, performance with respect to environmental, social and corporate governance issues.
The ESG scores, ratings, and other data used in S&P DJI ESG indices is supplied directly or indirectly by third parties (note these parties canbe independent affiliates of S&P Global or unaffiliated entities) so an S&P DJI ESG index’s ability to reflect ESG factors depends on thesethird parties’ data accuracy and availability.
ESG scores, ratings, and other data may be reported (meaning that the data is provided as disclosed by companies, or an asset, or as madepublicly available), modelled (meaning that the data is derived using a proprietary modelling process with only proxies used in the creation of
the data), or reported and modelled (meaning that the data is either a mix of reported and modelled data or is derived from the vendor using
reported data /information in a proprietary scoring or determination process).
ESG scores, ratings, and other data, whether from an external and/or internal source, is based on a qualitative and judgmental assessment,
especially in the absence of well-defined market standards, and due to the existence of multiple approaches and methodologies to assess
ESG factors and considerations. An element of subjectivity and discretion is therefore inherent in any ESG score, rating, or other data anddifferent ESG scoring, rating, and/or data sources may use different ESG assessment or estimation methodologies. Different persons(including ESG data ratings, or scoring providers, index administrators or users) may arrive at different conclusions regarding the sustainability
or impact of a particular company, asset, or index.
Where an index uses ESG scores, ratings or other data supplied directly or indirectly by third parties, S&P DJI does not accept responsibility
for the accuracy of completeness of such ESG scores, ratings, or data. No single clear, definitive test or framework (legal, regulatory, orotherwise) exists to determine ‘ESG’, ‘sustainable’, ‘good governance’, ‘no adverse environmental, social and/or other impacts’, or otherequivalently labelled objectives. In the absence of well-defined market standards and due to the existence of multitude approaches, theexercise of judgment is necessary. Accordingly, different persons may classify the same investment, product and/or strategy differently
regarding ‘ESG’, ‘sustainable’, ‘good governance’, ‘no adverse environmental, social and/or other impacts’, or other equivalently labelledobjectives. Furthermore, the legal and/or market position on what constitutes an ‘ESG’, ‘sustainable’, ‘good governance’, ‘no adverse
environmental, social and/or other impacts’, or other equivalently labelled objectives may change over time, especially as further regulatory orindustry rules and guidance are issued and the ESG sustainable finance framework becomes more sophisticated.
Prospective users of an S&P DJI ESG Index are encouraged to read the relevant index methodology and related disclosures carefully todetermine whether the index is suitable for their potential use case or investment objective.

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