Bloomberg and Goldman Sachs partner on clean energy index

Oct 27th, 2021 | By | Category: ETF and Index News

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Bloomberg and Goldman Sachs Asset Management have teamed up to launch the Bloomberg Goldman Sachs Global Clean Energy Index.

Bloomberg and Goldman Sachs partner on clean energy index

Bloomberg and Goldman Sachs have teamed up to launch a global clean energy index.

The index tracks the performance of over 175 global equities with active upside business exposure to the clean energy sector.

The index was developed jointly by the two firms, utilising a combination of analyst research and curated data acquired from a variety of sources.

It is available in price return, total return and net return formats and is suitable for use as an underlying reference for index-linked investment products including ETFs with GSAM being an obvious and early contender to launch such a product.

The index launch comes on the back of an incredible year for clean energy ETFs which have enjoyed huge inflows with only modest signs of investor appetite waning.

BlackRock‘s iShares Global Clean Energy ETF (ICLN US) – the largest ETF in the space – has chalked up more than 12 consecutive months of positive flows and gathered in excess of $4.5 billion in net new assets, facts unlikely to be lost on the new index’s creators.

Index methodology

The construction process starts with analysts in Bloomberg’s New Energy Finance team (BloombergNEF) identifying relevant companies from the broader Bloomberg World Index that operate in wind, energy storage, clean power, networks, digitalization, bioenergy, solar, and hydrogen industries.

The companies that are identified by the analysts are then put through three core exclusionary screens which take into account a company’s thematic relevance, its carbon impact, and any involvement in controversial Environmental, Social, and Governance (ESG) categories.

Thematic relevance is based on BNEF analysts’ estimates of the proportion of a company’s value that is attributable to clean energy activities. The analysts take into account reported segment revenues, along with other available metrics such as segmented EBITDA.

The estimates also account for a company’s current and planned activities in the various sectors it is involved in, such as GWh breakdown of electricity production and a capacity breakdown of generation assets.

Analysts also consider the expected growth of clean energy-relevant business lines, relative to other business lines, and weigh up the relevance of external factors that affect a company’s exposure to clean energy. Assessments are adjusted to exclude activities or values solely focused on zero-emissions vehicles.

Estimates are reviewed by sector specialists on a quarterly basis.

Using this data, each company is assigned to a thematic revenue exposure level: A1 (Main Drive, 50-100%), A2 (Considerable, 25-49%), A3 (Moderate, 10-24%), or A4 (Minor, <10%). Companies with thematic revenue exposure of less than 10% are excluded from the investable universe.

The methodology also excludes the largest 15% of emitters without Science Based Targets initiative (SBTi) or Net Zero commitments, as well companies that fail various absolute and/or revenue-based exclusions pertaining to ESG controversies such as violation of UN Global Compact Principles or involvement with civilian firearms, thermal coal extraction, tobacco, arctic oil and gas exploration, oil sands, or thermal coal power generation.

The companies that remain are then weighted according to their clean energy exposure, subject to various caps. Specifically, 60% of the index weight is assigned to issuers classified as A1 Main Drive, with the top eight issuers by weight in this category capped at 5% and the rest of the issuers in this category capped at 4%. Thirty percent of the index weight is assigned to securities classified as A2 Considerable, with security weights in this category capped at 2.5%. The remaining 10% of the index weight is assigned to issuers classified as A3 Moderate, with issuer weights in this category capped at 1%.

The index is rebalanced on a quarterly basis.

Major positions currently include Contemporary Amperex Technology (5.4%), NextEra Energy (4.7%), LONGi Green Energy Technology (4.3%), Vestas Wind Systems (4.0%), Samsung SDI (2.8%), General Electric (2.6%), Orsted (2.4%), Schneider Electric (2.3%), Edison International (2.2%) and National Grid (2.2%). (Data as of September month-end).

‘Dynamic investment approach’

Commenting on the launch, Dave Gedeon, Global Head of Equity and Strategy Indices at Bloomberg, said: “Bloomberg and Goldman Sachs Asset Management are offering the market a new standard for clean energy indices. With increased recognition of the significant global investments necessary for de-carbonization coupled with declining renewable energy costs and ever-increasing technologies for renewable energy, our launch of a Clean Energy Index is particularly timely, and we look forward to offering this solution to the climate-focused investing community.”

Kyri Loupis, Head of Energy Infrastructure & Renewables at Goldman Sachs Asset Management, added: “Mainstream investors have an important role to play in financing the clean energy transition, especially as the battle against climate change intensifies. With new technologies and government policies emerging, however, the energy transition is rapidly evolving and requires a dynamic investment approach. As such, we are excited about leveraging BloombergNEF’s real-time energy insights and proprietary datasets to help investors reallocate capital to align with their long-term climate goals.”

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