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FTSE Group (“FTSE”), the award winning global index provider, together with partners CDP and ENDS Carbon today announces the launch of four new indices within the FTSE CDP Carbon Strategy Index Series. The extended index series combines FTSE’s expertise in ESG (Environmental, Social, and Governance) analytics and pioneering approach to index construction and weighting methodologies. The indices are designed to help investors reduce the long-term investment risks associated with climate change and related regulation in these markets.
The new indices in the series include the FTSE CDP Carbon Strategy Australia 200 Index, FTSE CDP Carbon Strategy Australia 300 Index, FTSE CDP Carbon Strategy Europe Index and FTSE CDP Carbon Strategy Japan Index. These indices join two existing UK indices: the FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index.
It is widely accepted that climate change will increasingly impact the profitability of companies and portfolios over the coming decades. Today’s launch is a timely response to the concerns of a large number of pension funds and asset managers who are seeking to incorporate carbon risks into their investment strategy.
David Harris, Director Responsible Investment, FTSE Group comments, “Institutional investors have demonstrated an appetite for using alternative index weighting methodologies, including the incorporation of risk based approaches. At the same time they are under increasing pressure to demonstrate action on integrating climate change and carbon-related risks in their portfolios. 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.”
Initially launched in December 2011, the index series benefits from the combined expertise of Carbon Disclosure Project (CDP), which acts on behalf of over 650 institutional investors globally and operates the largest database of corporate climate change information in the world; ENDS Carbon, the leading provider of carbon performance benchmarking and ratings; and FTSE, a pioneer in both the field of Responsible Investment and in the development of alternatively-weighted and risk based index methodologies.
The FTSE CDP Carbon Strategy Index Series has been created for core equity holdings by taking an established FTSE index and evaluating each company within the index to identify its level of exposure to future carbon risks. The companies within the index are then re-weighted based on their level of carbon risk. This open and transparent approach to calculating carbon risk based on a set of future-orientated criteria, rather than historic emissions data, is unique to the FTSE CDP Carbon Strategy Index Series.
By remaining ‘sector neutral’ and tilting weights rather than excluding companies, the new indices achieve a low tracking error relative to their underlying index. This is suitable for both retail and institutional investors who would like to achieve the diversification and returns which closely match established FTSE benchmark indices whilst also adapting their equity portfolio to the carbon constrained economies of the future.
Today’s launch represents FTSE’s commitment to developing innovative index solutions that meet the demands of the market. FTSE has been a pioneer in the area of responsible investment since launching the ground-breaking FTSE4Good Index Series in 2001 and more recently the FTSE ESG Ratings, an advanced tool for measuring a company’s ESG risk and performance.
Paul Simpson, Chief Executive Officer, CDP comments, “One of the key elements to avoiding dangerous climate change is that we shift capital flow towards companies that are acting to reduce carbon. 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.”
Dr Craig Mackenzie, Technical Director, ENDS Carbon comments, “Despite some setbacks, policy makers around the world are increasingly acting to introduce legislation to tackle climate change. The Australian carbon tax is one of a number of new developments. As time goes on, the risks associated with climate change for companies and investors will only rise. This index series provides pension funds with a way to integrate these risks into their investment strategies.”
