Why Facebook Was Dropped From The S&P 500 ESG Index

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Summary

When the S&P 500 ESG Index underwent its annual rebalance after markets closed on April 30, 2019, several notable companies were removed.

To keep alignment with the S&P 500 and to exclude companies underperforming in ESG, companies are ranked within their S&P 500 GICS industry groups by their S&P DJI ESG Scores.

Facebook’s overall S&P DJI ESG Score was 21, out of a range of 0 to 100, with 100 being best.

By Reid Steadman

When the S&P 500 ESG (Environmental, Social, and Governance) Indexunderwent its annual rebalance after markets closed on April 30, 2019, several notable companies were removed, including Wells Fargo (WFC), Oracle (ORCL), and IBM. However, the largest component to be dropped was Facebook (FB).

A day before its exclusion, Facebook held a weight of 2.5% in the S&P 500 ESG Index. At that time, it was the fourth-largest company in the S&P 500, the parent index for the S&P 500 ESG Index, with a weight of 1.9%.

Why was Facebook removed? To better understand, a primer on the S&P ESG Index Series methodology1 is helpful.

Some ESG indices, like the Dow Jones Sustainability Indices,2 are narrow in their construction, selecting only a few leading companies in sustainability, industry by industry. Other ESG indices, such as the S&P 500 ESG Index, keep broad exposure but exclude companies lagging in ESG performance or that are involved in certain business activities, such as the production of tobacco or controversial weapons.

To keep alignment with the S&P 500 and to exclude companies underperforming in ESG, companies are ranked within their S&P 500 GICS industry groups by their S&P DJI ESG Scores. They are then selected, highest to lowest, with the aim of getting as close as possible to a market capitalization threshold of 75% within each industry group.

In the case of Facebook, its overall S&P DJI ESG Score was 21, out of a range of 0 to 100, with 100 being best. This low score resulted in Facebook not being selected as part of the approximately 75% of the Media & Entertainment industry group’s market capitalization included in the S&P 500 ESG Index.

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