The S&P 500 ESG Index has completed its second annual rebalancing since it launched last year, with some surprising companies kicked out.
Twitter and Walmart were dropped from the ESG index for failing to meet certain ESG standards while Facebook, which was removed last year due to several controversies, made a re-entry.
Twitter was ineligible for the index this year due to a low United Nations Global Compact Score. The non-binding UN score encourages businesses to adopt more sustainable and socially responsible practices.
Facebook's re-entry, meanwhile, came after the company managed to make improvements to its governance that resulted in a better ESG score.
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"Last year, the rebalance resulted in some changes that hit the headlines—most notably, the removal of Facebook from the sustainable version of the iconic S&P 500," said S&P head of ESG product strategy, North America Mona Naqvi.
"With markets currently in turmoil due to the outbreak of COVID-19, interest in ESG is at an all-time high. Thus, the big question, 'Who made the cut?' is perhaps more relevant now than ever before."
In financials, Wells Fargo re-entered the index after being kicked out last year. Its overall ESG score actually fell, but its ranking within its industry group improved indicating other US banks may have put in poorer ESG performances.
The S&P 500 ESG Index aims to retain as many companies from the S&P 500 as possible (and thus closely replicate the risk/return), after removing certain companies based on ESG principles.
Johnson & Johnson was kicked out of the ESG Index in 2019 for controversies over its products, including mesh devices and talcum powder, causing harm. It failed to re-enter the index in 2020. It is one of the largest S&P 500 companies to remain excluded from the ESG index.
Berkshire Hathaway, Netflix, PayPal, Phillip Morris and Lockheed Martin are all S&P 500 companies that remain excluded from the ESG index.
Phillip Morris and Lockheed Martin warranted automatic exclusions for involvement in tobacco and controversial weapons respectively.
Netflix, like Twitter, suffers from a poor UN Global Compact score as does Berkshire Hathaway. However, Berkshire Hathaway also has an S&P Dow Jones Indices ESG score in the bottom 25% of its industry globally.
PayPal is technically eligible for the index but its ESG score is not high enough to warrant selection.