Global index provider FTSE Russell has launched a new index reducing investor exposure to fossil fuel companies while increasing exposure to companies with green revenues. The FTSE Divest-Invest Developed 200 index is launched on the back of the provider’s new LCE green investment data model.

FTSE Russell launches index with reduced fossil fuel and increase green company exposure

The new index is made up from the largest 200 companies in the FTSE Developed All-Cap Index. Constituents that are not eligible for inclusion in the index are categorised under Industrial Classification Benchmark (ICB) sectors and sub-sectors – they include, oil and gas producers, oil equipment services and distribution providers, and coal and general mining.

These excluded companies are replaced by green companies whose weights are based on their Low Carbon Economy Industrial Indicator (LOWCII) factor. This factor is defined as a constituent’s ratio of its green revenues to its total revenues.

The data used to build the index is sourced from FTSE Russell’s LCE model, which is designed to capture changes in the revenue mix of companies as they increasingly provide goods, products and services that enable the world to adapt to, mitigate or remediate the impacts of climate change, resource depletion or environmental erosion. The FTSE Divest–Invest Developed 200 Index is the first product to be developed following the creation of FTSE Russell’s innovative LCE database, which is set to be publicly launched in the coming months.

Kevin Bourne, Managing Director, Database Services at FTSE Russell, said in a statement: “We’ve seen a rapid expansion of the green businesses of many companies around the world. What’s been missing from measures of the ‘green transition’ is exposure to this growth side of the opportunity. FTSE Russell is delighted to launch this exciting and original product, the FTSE Divest-Invest Developed 200 Index. There is significant demand to capture the full picture of the transition in portfolios and financial products, reflected in BNP Paribas licensing the index.”

As of 28^th April 2016, the index has significant exposure to companies from countries in the USA (71.25%), the UK (6.62%) and Germany (3.09%). The top ten holdings are: Apple Inc. (3.39%), Microsoft Corp (2.47%), Waste Mgmt Inc (2.13%), Johnson & Johnson (1.71%), General Electric (1.69%), Tesla Motors (1.60%), Facebook Class A (1.45%), Wells Fargo & Company (1.40%), AT&T (1.38%), Nestle (1.33%).  Of these, three of the largest sectors with green revenues in the index are Waste Management (+2.13%), Tesla Motors (+1.60%) and Vestas Wind Systems (+1.25%).

The LOWCII factors for each constituent will be updated annually, preceding the September review of the FTSE Developed All-Cap Index.

BNP Paribas has already licensed the new index for index tracking investment products.

Cian Fitzgerald, Head of UK Institutional Clients, Global Markets, BNP Paribas, said: “We see increasing appetite from our institutional investor client-base wishing to address climate change in their investment process. This index will enable us to bring to market products which satisfy the investment requirements of our UK institutional clients.”