Frequently Asked Questions
What is the KLD Broad Market Social Index?
Who created the KLD Broad Market Social Index and why?
How many companies are in the Index?
What universe does the Index utilize?
How was the Index constructed?
How does KLD evaluate the ESG performance of a company?
Does the BMSI apply exclusionary screens to its selection process?
How is the BMSI weighted?
How is the Index maintained?
Who calculates the Index performance and values?
What determines turnover of the Index?
Are the constituents of the Index "socially responsible" companies?
How is the BMSI different from other social investment indexes?
How can I obtain a list of the constituents in the BMSI?
Can I be notified of changes to the Index?
How can I invest in the BMSI?
Can I start a mutual fund or an ETF based on the BMSI?
How can I obtain Index analytics for portfolio performance measurement and attribution?
What is the KLD Broad Market Social Index?
The KLD Broad Market SocialSM Index is a diversified benchmark for measuring the risk and return characteristics of U.S. portfolios that incorporate ESG performance into the equity selection process. The BMSI holds companies with the highest ESG rankings in each sector of the U.S. equity market. The BMSI is the benchmark index in a series that includes three sub-indexes and two composite indexes.
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Who created the KLD Broad Market Social Index and why?
KLD Research & Analytics, Inc. created the Index in January 2001 to provide a broadly diversified and comprehensive representation of the U.S. equity market available to investors seeking to integrate environmental, social and governance (ESG) criteria into their investment strategies.
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How many companies are in the BMSI?
For most current number of companies on the index, please see the index Fact Sheet.
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What universe does the Index utilize?
The eligible universe for the BMSI is comprised of the 3,000 largest companies (by float-adjusted market capitalization) in the U.S. equity market on May 15th, or closest business day, of each year.
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How was the Index constructed?
The KLD Broad Market Social Index (BMSI) is the benchmark index in a series that includes three sub-indexes and two composite indexes.
The BMSI is comprised of companies with the highest environmental, social and governance (ESG) rankings in each sector of the 3,000 largest U.S. equities. To select companies for the index, KLD first breaks down the 3,000 largest U.S. equities into large cap, mid cap, and small cap sub-eligible universes. The large cap-eligible universe is comprised of the 400 largest companies; the mid cap-eligible universe is comprised of the next 600 largest companies; and the small cap-eligible universe is comprised of the smallest 2,000 companies.
KLD ranks companies in each sub-eligible universe by sector peer group according to ESG performance ratings. For each sector, key ESG performance indicators are identified and are given more weight in the rating process. KLD’s objective is to select the highest-ranked companies targeting 65% of the market capitalization of each sector in each sub-eligible universe. This process provides the constituents for the three primary sub-indexes of the BMSI series: the KLD Large Cap Social Index (LCSI), the KLD Mid Cap Social Index (MCSI) and the KLD Small Cap Social Index (SCSI).
KLD aggregates the three sub-indexes, the LCSI, the MCSI, and the SCSI. to form the BMSI.
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How does KLD evaluate the ESG performance of a company?
KLD’s ratings framework of over 65 indicators captures a company’s environmental, social and governance (ESG) performance by analyzing five key areas – environment; community and society; employees and supply chain; customers; and governance and ethics. To select companies for the BMSI series, KLD conducts a comprehensive ESG performance evaluation.
The BMSI series favors corporations that are:
- Strong stewards of the environment;
- Devoted to serving local communities and society generally;
- Committed to high labor standards for their own employees and those in their supply chain;
- Dedicated to producing high quality and safe products;
- Managing their company in an exemplary and ethical manner.
All companies selected for the BMSI must meet minimum ESG performance standards, as determined by KLD’s Sector Teams and the BMSI Committee. KLD recognizes that many companies will have some ESG concerns and gives careful consideration to how companies address the risks and opportunities they face in the context of their sector or industry and relative to their peers.
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Does the BMSI apply exclusionary screens to its selection process ?
No. In 2008 KLD expanded its ESG analytical framework to reflect the social and environmental impact of the production and sale of alcohol, tobacco, military weapons, firearms, nuclear power and gambling products and services. Previously, a company involved in any of these business activities was not eligible for the BMSI series if it exceeded specified revenue thresholds.
When evaluating the social and environmental impact of these types of companies, KLD takes into account the type of involvement as well as the amount of business derived from the provision of such products and services. The ratings of the majority of companies with involvement in these industries are negatively affected due to the social and environmental consequences of this exposure and thus are unlikely to be included on the BMSI.
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How is the BMSI weighted?
The BMSI is a float-adjusted market-capitalization weighted index.
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How is the Index maintained?
The BMSI reconstitutes every year on the third Friday of June. KLD continually monitors the BMSI for events that would require changes to index composition. These events include: corporate actions, changes in ESG performance and deteriorating financial quality. KLD follows pre-determined rules for removing and adding companies due to corporate actions. Companies may be removed at any time during the year, with the majority of changes due to corporate actions. Companies can only be added to the BMSI at reconstitution with few exceptions. The BMSI Committee makes the final decision on all changes to the Index related to ESG performance.
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Who calculates the BMSI performance and values?
The performance and values for the KLD Broad Market Social Index are calculated by Markit Group Limited.
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What determines turnover of the Index?
Between reconstitutions, KLD keeps turnover on the Index to a minimum. Most Index changes between reconstitutions are attributable to corporate actions. The majority of changes occur at reconstitution when KLD re-ranks companies in each sector to reflect changes to the market and to companies’ ESG ratings. The BMSI has turnover rate of approximately 2%-3%, typically, per year.
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Are the constituents of the Index "socially responsible" companies?
KLD researches and monitors all BMSI companies and believes that the companies on the Index represent the values of the mainstream social investor.
However, KLD recognizes that no corporation is "perfect." In addition, because KLD's screens reflect the interests of a broad cross-section of social investors, not all BMSI companies will correspond to everyone's standards.
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How is the Index different from other social investment indexes?
The BMSI is designed to be the most comprehensive representation of the U.S. equity market available to social investors. The BMSI is currently the only benchmark to track the performance of a socially screened broad market.
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How can I obtain a list of the constituents in the Index?
To purchase a current list of constituents, or to subscribe to daily or monthly constituents lists for all KLD Indexes, please contact indexes@kld.com.
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Can I be notified of changes to the Index?
KLD does not provide advanced notification of additions to or removals from its indexes. However, for a fee one can subscribe to daily constituents lists. Please contact indexes@kld.com for more information.
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How can I invest in the Index?
KLD Indexes is a division of KLD Research & Analytics and does not manage any funds or money. However, KLD Indexes are licensed as investable products for individuals and institutions.
For a complete list of products based on KLD Indexes, please see the Product Fact Sheet.
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Can I start a mutual fund or an ETF based on the Index?
KLD Indexes can serve as the basis for mutual funds, exchange-traded funds and separately managed accounts. Please contact indexes@kld.com to discuss licensing opportunities.
How can I obtain Index analytics for portfolio performance measurement and attribution?
KLD can provide clients with index data to measure portfolio performance and conduct attribution analysis. Please contact indexes@kld.com.
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