S&P Dow Jones Indices has begun to roll out sustainable versions of its popular ‘Dividend Aristocrats’ indices.
The new indices combine quality income with ESG-screened exposure.
The strategy underpinning the index range focuses on quality income by targeting companies that have followed a managed-dividends policy for a specified number of years.
Index constituents are also weighted by dividend yield to enhance income potential.
The range has proven popular with investors – both ProShares and State Street Global Advisors (SSGA) offer suites of US-listed ETFs linked to the indices which command billions of dollars in assets under management.
SSGA also offers a comparable range of European domiciled ETFs which collectively house around $5bn AUM.
With global demand for sustainable investing continuing to gather momentum, the new S&P ESG Dividend Aristocrats Indices are likely to be an area of significant interest for ETF product developers.
The indices follow the same fundamental strategy as the original editions; however, firms must also satisfy specific environmental, social, and governance (ESG) criteria to be eligible for selection.
Specifically, companies that are proven violators of UN Global Compact principles, are embroiled in severe ESG-related controversies, or are involved in controversial weapons, thermal coal, or tobacco will not be included.
Potential constituents are also assigned ESG scores based on SAM’s ‘Corporate Sustainability Assessment’. This score is either calculated directly by a company completing a comprehensive assessment (together with supporting documents), or – in the absence of this – by using publicly available information. Companies with ESG scores that sit in the lowest 25% of their universe will not be eligible for inclusion.
Reid Steadman, Global Head of ESG Indices at S&P Dow Jones Indices, said: “S&P Dow Jones Indices is proud to offer ESG versions of many of our most well-known and respected benchmarks. The S&P ESG Dividend Aristocrats Indices include a layer of sustainability screens, reflecting the market’s growing recognition of the financial materiality and impact of ESG issues on corporate balance sheets.”
Aye Soe, Global Head of Product Management at S&P Dow Jones Indices, added: “Dividend payments are often viewed as an important barometer of companies’ financial health and outlooks. Market participants closely monitor companies’ long-term dividend payment track records as indicators of corporate maturity and balance sheet strength. Investors also often utilize dividend-based strategies to help manage risks and returns especially in bearish and volatile market conditions.”
S&P DJI has introduced five indices as part of the initial S&P ESG Dividend Aristocrats offering:
The S&P Global ESG Dividend Aristocrats Index consists of the 100 highest yielding companies globally that have maintained or increased their dividend payments for at least ten consecutive years.
The S&P Global ESG Dividend Aristocrats Quality Income Index also consists of the 100 highest yielding companies globally that have maintained or increased their dividend payments for at least ten consecutive years; however, eligible firms must also satisfy certain fundamental metrics related to the quality of their balance sheets.
The S&P Developed ESG Dividend Aristocrats Index consists of the 100 highest yielding developed market companies that have maintained or increased their dividend payments for at least ten consecutive years.
The S&P ESG High Yield Dividend Aristocrats Index consists of all companies from the S&P Composite 1500 – a reference for large, mid, and small-cap US equities – which have consistently increased their dividends every year for at least 20 years.
The S&P Euro ESG High Yield Dividend Aristocrats Index consists of the 40 highest yielding eurozone companies that have maintained or increased their dividend payments for at least ten consecutive years.