S&P DJI publishes carbon metrics for equity indices

Oct 30th, 2017 | By | Category: ETF and Index News

S&P Dow Jones Indices (S&P DJI) has begun publishing carbon metrics on the majority of its equity indices, including the S&P 500 and Dow Jones Industrial Average. The initiative aims to support ESG transparency, enabling market participants to understand, measure and manage carbon risk.

S&P DJI debuts carbon metrics for equity indices

The low-carbon version of the S&P 500 Index has outperformed the S&P 500 over the past five years.

Hannah Skeates, senior director, strategy and ESG indices at S&P DJI, commented: “As we move towards a low and zero carbon global economy, having carbon metrics as standard is likely to become commonplace. Once market participants understand their carbon exposure, they can begin to find solutions to manage this exposure and potential risk. Whether reducing carbon exposure through a broad market low carbon strategy, or via fossil fuel divestment, S&P DJI has indices – and the carbon metrics to measure it. We are very excited to be at the forefront of bringing this level of transparency and information to the marketplace.”

There are three metrics currently available for the indices, using Trucost data and analysis: (i) ‘carbon footprint’ measures the metric tons of CO2e (carbon dioxide equivalent) per $1 million invested against the index; (ii) ‘carbon efficiency’ measures the metric tons of CO2e per $1m of a company’s revenues against the index; and (iii) ‘fossil fuel reserves’ measures the greenhouse gas emissions that could be generated if the proven and probably fossil fuel reserves owned by constituents were burned, per $1m invested.

According to data from S&P DJI, the S&P Global 1200 Index – a proxy for the performance of the global equity market – has a carbon efficiency of 241 metrics tons per $1m of revenues. In contrast, the S&P Global 1200 Fossil Fuel Free Carbon Efficient Select Index, which removes the largest carbon emitters from the S&P Global 1200, exhibits a carbon efficiency of 89 metrics tons of carbon emitted for every $1m in revenues in the index – a reduction of 63%.

The S&P 500 Fossil Fuel Free Carbon Efficient Select Index exhibits approximately 37 metrics tons of CO2e emitted per every $1m invested – a reduction of 58% from the S&P 500. Additionally, even a relatively simple re-weighting scheme within sectors – as illustrated by the S&P 500 Carbon Efficient Index – served to reduce carbon emission by 30%. S&P DJI further indicates that the low carbon version of the S&P 500 outperformed the US bellwether index over the past five years, illustrating that incorporating environmental considerations into an index may improve performance.

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