S&P Dow Jones Indices has launched the S&P Carbon Price Risk Adjusted Indices, a global index series which re-weights constituents of indices such as the S&P 500 to account for estimated market valuation risk from forecast 2030 carbon prices.

The new index series seeks to address potential company-specific financial value at risk attributable to carbon, rather than looking purely at current quantity of emissions.

The indices are the first of their kind to incorporate an assessment of the impact of potential future carbon prices.

Data on the gap between current and potential future carbon prices is supplied by ESG analytics firm Trucost, which is part of S&P DJI.

Each index applies a reweighting factor to its constituents which address the following elements:

• The estimated impact to a company’s operating profit if carbon prices increase by the year 2030 to the levels believed to be necessary to restrict global warming to a maximum two degree increase by the year 2100
• The estimated impact of that loss of operating profit on a firm’s market valuation

According to S&P DJI, adjusting market valuations to account for the future possible cost of carbon emissions seeks to address potential company-specific financial value at risk attributable to carbon, rather than looking purely at current quantity of emissions.[pullquote]“As the efforts to achieve the commitments of the Paris Agreement and the transition to a low carbon economy progress, future carbon prices could lead to significant increased costs for companies which have not managed their global emissions.”
– Hannah Skeates, senior director, ESG and strategy indices at S&P Dow Jones Indices[/pullquote]

Hannah Skeates, senior director, ESG and strategy indices at S&P Dow Jones Indices, said, “As the efforts to achieve the commitments of the Paris Agreement and the transition to a low carbon economy progress, future carbon prices could lead to significant increased costs for companies which have not managed their global emissions. The S&P Carbon Price Risk Adjusted Index Series was developed to help market participants understand the financial risks embedded among the higher carbon emitters of the current global economy.”

The index series consists of twelve indices spanning the globe. These include versions of S&P DJI’s better known US large-, mid-, and small-cap equity indices – the S&P 500, S&P MidCap 400, and S&P SmallCap 600 respectively. The series also incorporates indices covering global, developed market, and emerging market exposures, as well as regional indices targeting North America, Europe, and Asia Pacific.

The full list of carbon price risk-adjusted indices is as follows:

S&P 500 Carbon Price Risk 2030 Adjusted Index
S&P MidCap 400 Carbon Price Risk 2030 Adjusted Index
S&P SmallCap 600 Carbon Price Risk 2030 Adjusted Index
S&P Europe 350 Carbon Price Risk 2030 Adjusted Index
S&P Global 1200 Carbon Price Risk 2030 Adjusted Index
S&P South Africa Composite Carbon Price Risk 2030 Adjusted Index
S&P Global LargeMidCap Carbon Price Risk 2030 Adjusted Index
S&P Developed LargeMidCap Carbon Price Risk 2030 Adjusted Index
S&P Emerging LargeMidCap Carbon Price Risk 2030 Adjusted Index
S&P Europe Developed LargeMidCap Carbon Price Risk 2030 Adjusted Index
S&P North America LargeMidCap Carbon Price Risk 2030 Adjusted Index
S&P AsiaPac Developed LargeMidCap Carbon Price Risk 2030 Adjusted Index