ENDS Carbon partners with FTSE and CDP to launch Carbon Strategy Indices for investors
ENDS Carbon has partnered with FTSE Group (FTSE), the award winning global index provider, and the Carbon Disclosure Project, which acts on behalf of over 500 institutional investors globally, to launch the new FTSE CDP Carbon Strategy Index Series
The new index series will launch initially with two UK indices; the FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index. Both indices have been designed in response to growing awareness of the significant potential impact of climate change on investment returns.
Post Copenhagen, governments across the globe have been working towards holding emissions below levels that would increase global temperatures by 2°C. Achieving these levels will require increased costs for carbon emissions. The FTSE CDP Carbon Strategy Index Series reflects this carbon risk in its initial offering of 'carbon-tilted' versions of the UK's FTSE All-Share and FTSE 350 indices. The indices feature the same constituents with a variation of weightings based on their exposure to carbon risk, relative to their sector peers.
The index series will be based on future-oriented criteria rather than past emissions data. It is the first index series to offer a long term forward-looking investment tool that closely tracks established UK benchmarks while supporting the reduction of climate change risks across investment portfolios. This means retail and institutional investors, such as pension funds, can achieve broad and diversified market exposure as well as manage the impact of climate change on their investment.
The indices also identify high risk industry sectors where carbon risk has a significant impact on corporate earnings such as aviation, oil and gas, mining, and electric power. As a result, companies in such sectors will be subject to tilts that are ten times greater than those in lower risk industries. By remaining 'sector neutral' and tilting weights rather than excluding companies, the new indices achieve a low tracking error relative to the FTSE All-Share and FTSE 350 indices.
David Harris, Director Responsible Investment, FTSE Group says “Increasingly investors around the world are looking to integrate climate change considerations into their investments. Last year we launched the FTSE Environmental Markets Classification System and Indices to support investors in accessing environmental technology. Today we are building on our environmental offering with a sister index series that takes the effect of climate change into account, within core equity holdings. This is a timely and innovative index series which comes amidst a broad range of regulatory and market incentives being introduced around the world to facilitate the transition to a low carbon economy.”
Paul Simpson, Chief Operating Officer, CDP: said “These indices will provide new insights for investors into the CDP dataset of primary corporate climate change data. By applying forward looking analysis, we see how companies will be impacted by climate change in the future and those demonstrating strong carbon performance will benefit from higher rankings within the indices.”
James Cameron, Vice-Chairman, Climate Change Capital said of the indices: 'Institutional investors need support to factor in climate change across all their holdings, it's not about tokenism but about how to align investment strategy with climate risk. We need capital to flow at scale into the solutions to Climate Change. That flow needs to be properly directed and responsibly allocated and there is no substitute for good quality data intelligently interpreted and these new indices offer this support.”
Dr Craig Mackenzie, Technical Director, ENDS Carbon “Our research has found that in every sector some companies have developed a stronger position on climate change than others. As the world's governments tighten carbon regulations, these companies should outperform their less fortunate competitors. By tracking the low-carbon economy's winners and losers, the Index Series provides investors with a novel way to manage their risks”
The FTSE CDP Carbon Strategy Index Series is the latest offering from FTSE's established Responsible Investment Unit, now in its eighth year and responsible for the management of the world renowned FTSE4Good Index Series. The index series based on transparent and publicly available ground rules offers the broadest set of environmental indices in the market. It can be used as the basis of a range of investment products including ETFs; tracker funds and structured products; and custom index variations.