September 29, 2021

Incorporating ESG into US equity benchmarks

Increasingly investors seek the ability to incorporate sustainable investment considerations within a broad US market portfolio, but without impacting the risk and return characteristics of the underlying benchmark. The Russell US ESG Indexes are a US equity index family that uses the innovative Refinitiv ESG Scores framework to provide an Environmental, Social and Governance lens on the US equity universe.

This paper uses the example of the Russell 1000 ESG Enhanced Target Exposure Index to illustrate the effects of the screening and the target exposure methodology to show that even though more than 5% of stocks are screened out, the industry weights are similar to those of the underlying index. The overall correlations between the Russell 1000 ESG Enhanced Target Exposure index and its underlying benchmarks remain extremely high, with the rolling 24-month correlations for the index around 0.999 over the past several years.