FTSE Group (FTSE), the award winning global index provider, announced the launch of the new FTSE CDP Carbon Strategy Index Series, jointly developed with the Carbon Disclosure Project which acts on behalf of over 500 institutional investors globally and ENDS Carbon, the leading provider of carbon performance benchmarking and ratings.
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 2ºC. 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.