ERI Scientific Beta, a smart beta index provider and a commercial venture of Paris-headquartered EDHEC Risk Institute, has announced the launch of the ERI Scientific Beta Low Carbon Multi-Beta Multi-Strategy Indexes, a series of low carbon smart beta indices.
ERI Scientific Beta and South Pole Group have collaborated on a suite of low carbon smart beta indices.
Developed in collaboration with the South Pole Group, a sustainability solutions consultant, the indices seek to reduce the carbon footprint of equity investments by as much as 80% while simultaneously being able to create more than 50% additional value in the medium term.
Maximilian Horster, Director Financial Industry at South Pole Group, commented: “We are delighted to share our expertise with ERI Scientific Beta to produce low-carbon versions of their highly respected multi-smart factor indices. The combination of low-carbon emissions and state-of-the-art smart factor indices is a compelling opportunity for investors globally.”
Given the marriage of two “hot” investment themes, namely ESG / low carbon and smart beta, the indices will likely draw the attention of exchange-trade fund issuers who may look to license the indices for ETF product development.
The indices work by excluding the largest carbon emitters, the worst firms in terms of carbon intensity in each sector of activity, and the largest holders of fossil assets. By so doing, the indices reduce exposure to firms who are most affected by the increasing cost of fossil fuels and the tons of carbon emitted. EDHEC risk institute highlights this quality as a potential driver of long-term outperformance.
The series also endeavours to promote a strong positive impact on the environment by weighing (by virtue of their exclusion) on the value of the stocks of the excluded firms, thereby encouraging corporate management teams to alter their strategy or their production process in order to be removed from the exclusion list. This lofty goal, of course, will be highly dependent on the commercial success of the indices and their ability to attract linked assets.