Stoxx, a leading European index provider, has announced the launch the Stoxx Low Carbon Indices, a suite of indices offering enabling market participants to limit the exposure of their portfolios to carbon risk while participating in the low-carbon economic growth.
STOXX has unveiled a new index suite offering four sub-sectors of indices all focused on delivering low carbon investment benchmarks. With growing demand for carbon-reduced investment products, these indices may well form the basis for future ETFs.
The indices are designed to act as an underlying for index-linked investment products such as exchange-traded funds.
The suite comprises the Stoxx Low Carbon Indices, which closely track the risk-return profile of the underlying benchmark indices while offering a reduction in carbon emissions in the overall portfolio of constituents; the Stoxx Reported Low Carbon Indices, which track companies publicly committed to disclosing their carbon emissions; the Stoxx Industry Leaders Low Carbon Indices, which replicate the performance of blue-chip firms with the most favourable carbon footprint analysis using both reported and estimated data; the Stoxx Low Carbon Footprint Indices, which completely eliminate the highest carbon emission supersectors (Chemicals, Utilities, Oil & Gas, Construction & Materials, Travel & Leisure, Food & Beverage and Basic Resources) and selects only those firms within the remaining sectors with minimal carbon emissions; and the Stoxx Global Climate Change Leaders Index, which tracks only those companies in the Carbon Disclosure Project’s (CDP) “A-list” database of leading firms who are publicly committed to reducing carbon emissions.
Hartmut Graf, chief executive officer, Stoxx, commented: “Reducing carbon emissions is a global objective, and market participants look for fully tailored solutions to decarbonize their portfolios to address long-term climate risks, while participating in the sustainable growth of a low-carbon economy. One of their main challenges in this process is high-quality data that makes granular analysis of companies’ carbon footprint and climate impact through the entire supply chain possible.
“Our Stoxx Low Carbon index family enables investors to easily incorporate sustainability factors into their portfolio which focus on carbon emissions. The Stoxx Global Climate Change Leaders Index in particular provides an innovative solution to track companies that are leaders in mitigating climate change and are publicly committed to reducing carbon emissions. We are delighted to be one of the first index companies incorporating this data provided by the market leader CDP into a global family of indices.”
The indices leverage the expertise of CDP, a non-profit organization assisting investors and companies to reduce the negative climate impacts of their actions, as well as South Pole Group, a project developer focused on reducing carbon emissions. The 822 investors who have requested disclosure of firms’ carbon footprints through CDP account for more than a third of the world’s invested capital, highlighting the strong interest shown in this area.
Paul Simpson, chief executive officer of CDP, added: “Indices have a tremendous impact on investor behaviour, as they give valuable orientation and benchmarks for investment decisions. For 15 years now CDP has provided investors with data and analysis that allow them to incorporate climate factors into their investment approach that can highlight mitigation leaders and laggards. We are delighted to be part of this initiative together with Stoxx and South Pole Group to launch this low carbon index family. These innovative indices will flag the growing importance of climate issues in portfolios and encourage investment flows into low-emitting companies, such as those within CDPs Climate A List, thus fostering the transition to a low-carbon economy.”
The two groups collate a range of reported as well as estimated carbon emissions data which focus on both direct and indirect (from the consumption of bought electricity, heat or steam) greenhouse gas emissions. This allows the indices to at least partly navigate a common criticism that fundamental climate factors are often ignored when adopting a direct approach to emission monitoring. For example, ExxonMobil has a larger weight in MSCI’s Low Carbon Leaders Index than in the MSCI World Index.
Constituents of each index are weighted according to a function of their free float market capitalisation and their carbon intensity Z-scores. Given equal free float market capitalisations, a company will receive a higher weighting if it produces a lower carbon footprint. Additionally, the Stoxx Industry Leaders Indices will be available in an equal weight version. The indices, which are reviewed annually in December, are available in euro, US dollar, Australian dollar and Japanese yen denominations.