Solactive has unveiled the Solactive Climate and Energy Transition Index, tracking companies showing commitment to energy transition in their sectors while exhibiting low volatility and high dividend yield characteristics.
The index provides exposure to 40 global stocks that are showing commitment to energy transition in their sectors.
Timo Pfeiffer, head of research at Solactive, commented, “Investors can use the Solactive Climate and Energy Transition Index to gain exposure to companies that are pushing forward the transition to greener economies. Given increased social and environmental awareness, investing in such companies can reduce the risks caused by incompliance and potentially provide a ground for future outperformance.”
The index is based on a methodology developed by French investment bank Natixis in collaboration with Sustainalytics, a provider of environmental, social, and governance (ESG) research and ratings.
Sustainalytics is well-known in the ETF space and provides sustainability ratings that power a range of Solactive offerings, from euro-denominated corporate bond indices to global equity indices, as well as indices from rival index providers.
Of note, Sustainalytics collaborated with top-tier ETF providers JP Morgan and BlackRock on a suite of ESG-screened emerging market bond indices and was also the company that European provider Ossiam turned to when it decided to add ESG screening to the $260 million Ossiam US Minimum Variance ESG ETF (USMV LN).
The methodology behind the Solactive Climate and Energy Transition Index screens the parent Solactive GBS Developed Markets Large & Mid Cap Index – a reference for global developed market equities – for companies involved in the tobacco, weapons, fossil fuels and mining industries. These stocks are eliminated from potential selection. Additionally, any stock with a market cap below €1 billion or an average daily traded volume below €10 million is excluded.
The remaining companies are assigned a “Climate Score” to reflect their level of involvement in the energy transition and climate issues. Calculated by Sustainalytics, the Climate Score incorporates a product lifecycle approach by evaluating companies both on their carbon footprint resulting from their operations and on the indirect emissions linked to products and services during their lifecycle.
It combines quantitative indicators to measure carbon emissions and qualitative indicators to evaluate the extent to which the company contributes to the climate and energy transition through innovative products and services.
The top 70% based on Climate Scores are selected for further screening. The historical volatility of the remaining stocks is calculated as the maximum of the volatility over the past 3-months and the past 6-months, with the 60% of stocks displaying the lowest volatility being selected.
Finally, amongst the remaining stocks, the methodology selects the 40 highest dividend-yielding stocks to form the final index composition, subject to a country cap of ten stocks and a sector cap of eight stocks.
The index is suitable for use as an underlying reference for index-linked investment products such as ETFs.