By Dieter Holger
S&P Global Inc. said Wednesday that it kicked out big-name companies and added others to its sustainable version of its bellwether S&P 500 index, a move that will impact a growing swath of investments tied to the benchmark.
Following this year’s rebalance of the S&P 500 ESG Index, the New York–based ratings agency firm now excludes Equifax Inc. /zigman2/quotes/208789454/composite EFX +1.43% and ViacomCBS Inc. /zigman2/quotes/200340870/composite VIAC -1.02% /zigman2/quotes/206702514/composite VIACA +0.17% for landing in the bottom quarter of environmental, social and governance scores among S&P 500 members. It also kicked out Twitter /zigman2/quotes/203180645/composite TWTR +0.43% , since it had a low score under the United Nations Global Compact.
S&P said it replaced Walmart Inc. /zigman2/quotes/207374728/composite WMT +1.30% with Costco Wholesale Corp. /zigman2/quotes/201191698/composite COST +1.30% because its ESG score fell below its industry peers.
In response to S&P’s decision, a Walmart representative said the company hasn’t “been engaged in a discussion or exchanged information with anyone from S&P regarding the S&P 500 ESG Index. ESG rating systems are evolving and current methodologies are inconsistent across rating organizations.”
“We stand by our ESG work which has been recognized by others,” the spokesperson added.
Twitter declined to comment. Equifax and ViacomCBS didn’t immediately respond to requests for comment.
Other well-known companies that S&P excluded were Clorox Co. /zigman2/quotes/206443229/composite CLX +2.09% , Ford Motor Co. /zigman2/quotes/208911460/composite F -1.66% , Nordstrom Inc. /zigman2/quotes/203902116/composite JWN +0.06% and Southwest Airlines Co. /zigman2/quotes/203902116/composite JWN +0.06% , but S&P said these were actually eligible based on their ESG performance but didn’t make the cut as their scores were lower than their industry peers.
Companies S&P added to the index include American Airlines Group /zigman2/quotes/209207041/composite AAL -1.38% , Royal Caribbean Cruises /zigman2/quotes/208854639/composite RCL -2.52% and DTE Energy Co. /zigman2/quotes/205073403/composite DTE +1.21% .
After screening out companies involved in tobacco or controversial weapons or with a low United Nations Global Compact score, the S&P 500 ESG Index aims to hold as many companies with high ESG scores by targeting 75% of the parent benchmark market cap by specific industry groups.
See: MarketWatch’s complete coverage of climate change and corporate responses
S&P said the index has delivered better performance this year than the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.40% benchmark; it’s down just less than 10.5% in 2020, while the S&P 500 is down 10.8%. Over the past 12 months, the ESG index is down 0.2%, while the S&P 500 is now up nearly 0.4%.
As of the 2020 rebalance, 311 members of the S&P 500 made it in the index and 56 were excluded, while another 138 were eligible but not selected.
Meeting sustainability standards has become increasingly important for companies as a growing wave of investments are tied to ESG performance. S&P has licensed the S&P 500 ESG Index for funds, including the Xtrackers S&P 500 ESG ETF /zigman2/quotes/213019972/composite SNPE +1.81% , which now holds more than $100 million in assets.
Invesco Ltd. also has exchange-traded funds tracking the index: the Invesco S&P 500 ESG Index ETF listed in Canada /zigman2/quotes/216894064/delayed CA:ESG -1.17% and the Invesco S&P 500 ESG UCITS ETF listed in Europe.
In January, S&P and BlackRock Inc. /zigman2/quotes/207946232/composite BLK +0.61% , the world’s largest money manager with close to $7 trillion in assets, agreed to create ESG versions of S&P’s flagship indexes to launch new sustainable funds.
BlackRock forecasts that sustainable investments in exchange-traded and index funds will soar to $1.2 trillion by 2030. It said there is around $220 billion in such funds currently.