SSE and CSI team up on carbon emission-based index for China investors

Sep 29th, 2015 | By | Category: ETF and Index News

The Shanghai Stock Exchange and China Securities Index have announced the launch of the first China index targeting carbon efficient companies: the SSE 180 Carbon Efficient Index.

The first carbon emission-based index for China investors

The new index excludes high carbon-emitting companies from the SSE 180 Index.

The new index offers investors a benchmark to track the performance of low carbon-emitting Chinese companies and can also be used as the basis for index-linked products such as exchange-traded funds.

There has been a surge in demand for environmental, social and governance (ESG) indices this year, with MSCI recently reporting a 30% rise in ETF assets tracking ESG indices to $1.8bn.

Considering China’s economic development strategy, which increasingly emphasises the need for green and low-carbon growth, the index is well placed to benefit from this structural shift in the economy.

Liu Zhong, vice general manager of China Securities Index, said: “In today’s China where green growth is the new norm, green indices such as the SSE 180 carbon efficient index will provide the market with a great tool for green financial innovation, guiding more capital and more resources towards low carbon and green companies and industries, which will in turn accelerate the green growth economy.”

The SSE 180 Carbon Efficient Index aims to identify companies with financial performance that matches or exceeds their peers, but with significantly lower carbon emissions, based on data from environmental research house Trucost.

Neil McIndoe, head of environmental finance at Trucost, said: “With over five years of experience creating low carbon indices for leading global financial institutions, Trucost is delighted to be working with SSE and CSI to launch China’s first carbon efficient financial index. Policy moves towards higher carbon costs will make the index attractive to investors due to its significantly lower carbon exposure and better than benchmark financial performance.”

To create the carbon efficient index, Trucost assess the carbon intensity of all companies in the parent SEE 180 Index using its database of environmental performance of exchange-listed companies and their supply chains worldwide. Stocks are then ranked by their carbon footprint with those with high emissions being removed. The sector weight of the index is kept in line with the parent index and within each sector a higher constituent weight is given to low emission companies.

Backtested performance of the index has been shown to improve performance with returns from the carbon efficient index 18% higher than the benchmark SSE 180 Index since July 2013. At the same time, the carbon intensity of the carbon efficient index is almost 85% less than that of the benchmark index.

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