FTSE accelerates green push with new Carbon Strategy indices
Investors and businesses in Europe, Japan and Australia will from today be provided with a new tool for tracking large firms’ exposure to carbon-related risks, after the FTSE Group launched four new green indices as part of its FTSE CDP Carbon Strategy Index Series.
Developed in partnership with the Carbon Disclosure Project (CDP) and analyst firm ENDS carbon, the new indices apply a weighting to existing equity indices based on a company’s level of exposure to carbon-related risks such as new environmental policies and climate change impacts.
“We look at how business models are aligned to carbon risks and then give constituents in the index a risk weighting,” said a spokeswoman for FTSE Group. “It is not negatively screened, so all companies remain in the index, but it is reweighted so investors are not as exposed.”
The four new FTSE CDP Carbon Strategy indices are based on the Australia 200 and Australia 300 indices, and FTSE indices for Europe and Japan. They join the UK-based FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index, which were launched last year.
Institutional investors are now expected to develop new products based on the indices that allow investors to target investments towards firms with an effective carbon management and climate risk strategy.
David Harris, Director for Responsible Investment at FTSE Group, said there was a growing appetite among institutional investors for index weighting methodologies that take better account of environmental and other risks
“They are under increasing pressure to demonstrate action on integrating climate change and carbon-related risks in their portfolios,” he added. “The FTSE CDP Carbon Strategy Index Series gives investors the ability to redefine passive equity strategies in light of future carbon risks, while maintaining close performance tracking of the underlying FTSE benchmark.”
The indices are the latest in a series of green services from FTSE, dating back to the 2001 launch of the FTSE4Good Index Series, which tracks firms that meet environmental and governance standards, and the more recent FTSE ESG Ratings, which measures companies’ environmental, social and governance performance.
Paul Simpson, chief executive of the investor-backed CDP, said the new indices could help tilt investments in favour of firms that have developed effective climate risk management strategies.
“One of the key elements to avoiding dangerous climate change is that we shift capital flow towards companies that are acting to reduce carbon,” he said in a statement. “These indices, which apply forward-looking analysis to the CDP data set, offer investors a straightforward mechanism to protect themselves from risk and factor climate change into their investment decisions.”
The launch comes just weeks after a group of investors wrote to regulators in the UK and Europe calling on them to investigate whether exposure to carbon intensive firms represented a “systemic risk” to leading markets
Developed in partnership with the Carbon Disclosure Project (CDP) and analyst firm ENDS carbon, the new indices apply a weighting to existing equity indices based on a company’s level of exposure to carbon-related risks such as new environmental policies and climate change impacts.
“We look at how business models are aligned to carbon risks and then give constituents in the index a risk weighting,” said a spokeswoman for FTSE Group. “It is not negatively screened, so all companies remain in the index, but it is reweighted so investors are not as exposed.”
The four new FTSE CDP Carbon Strategy indices are based on the Australia 200 and Australia 300 indices, and FTSE indices for Europe and Japan. They join the UK-based FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index, which were launched last year.
Institutional investors are now expected to develop new products based on the indices that allow investors to target investments towards firms with an effective carbon management and climate risk strategy.
David Harris, Director for Responsible Investment at FTSE Group, said there was a growing appetite among institutional investors for index weighting methodologies that take better account of environmental and other risks
“They are under increasing pressure to demonstrate action on integrating climate change and carbon-related risks in their portfolios,” he added. “The FTSE CDP Carbon Strategy Index Series gives investors the ability to redefine passive equity strategies in light of future carbon risks, while maintaining close performance tracking of the underlying FTSE benchmark.”
The indices are the latest in a series of green services from FTSE, dating back to the 2001 launch of the FTSE4Good Index Series, which tracks firms that meet environmental and governance standards, and the more recent FTSE ESG Ratings, which measures companies’ environmental, social and governance performance.
Paul Simpson, chief executive of the investor-backed CDP, said the new indices could help tilt investments in favour of firms that have developed effective climate risk management strategies.
“One of the key elements to avoiding dangerous climate change is that we shift capital flow towards companies that are acting to reduce carbon,” he said in a statement. “These indices, which apply forward-looking analysis to the CDP data set, offer investors a straightforward mechanism to protect themselves from risk and factor climate change into their investment decisions.”
The launch comes just weeks after a group of investors wrote to regulators in the UK and Europe calling on them to investigate whether exposure to carbon intensive firms represented a “systemic risk” to leading markets
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