Going Green with STOXX Low Carbon Index Family
Left unchecked, climate change could cost the world 20% of global GDP by the end of this century, according to a recent report from the UNEP Finance Initiative and reinsurer Swiss Re. After the landmark agreement at the recent United Nations (UN) Climate Change Conference, investors are more aware than ever of the financial costs of climate-related risks, seeking ways to mitigate these costs while unlocking the potential of investments in renewable energy and the low-carbon economy.
Against this backdrop, STOXX launched today the STOXX® Low Carbon index family, a range of innovative solutions for investors with different low-carbon strategies, based on established benchmark and blue-chip indices such as EURO STOXX 50® and STOXX® Europe 600. The STOXX Low Carbon Indices consist of four sub-families offering varying degrees of carbon exposure.
Using the indices, investors can choose to mitigate their carbon risk, without changing their overall risk-return profile, or exclude fossil fuel holdings altogether.
1. STOXX Low Carbon Indices are comprised of well-known STOXX benchmark indices and the blue-chip EURO STOXX 50 that have been “carbon-tilted”—their holdings reweighted to favor companies with lower carbon footprints, allowing investors to closely track the risk-return profile of the benchmark while reducing the carbon footprint of their investments.
Case Study: The EURO STOXX 50® Low Carbon Index achieved a carbon footprint 55% lower than the EURO STOXX 50 index, with similar risk characteristics, while delivering 3-year annualized returns of 12.18% (versus 11.08% for the EURO STOXX 50).
Case Study: Two-thirds of the STOXX Europe 600 companies, representing 85% of the market capitalization, are comprised in this index because they disclose their carbon emissions data, with similar risk-return characteristics compared to the benchmark. In general, mostly large-cap companies and high-emission sectors have reported their carbon footprints since 2011, making it harder for other sectors to remain silent on their own emissions.
3. STOXX® Industry Leaders Low Carbon Indices allow investors to gain diverse exposure to industry leading corporations, while reducing their investments’ carbon footprint by more than 80%.
Case Study: The STOXX® Europe 100 Low Carbon index achieved a carbon footprint 84% lower than the STOXX Europe 600 benchmark index, with lower risk characteristics, while delivering 3-year annualized returns of 19.01% versus 12.66% for the STOXX Europe 600 index.
4. STOXX® Low Carbon Footprint Indices allow investors to exclude or divest from high-emitting companies in their portfolios. After excluding the most carbon-intensive supersectors and 10% of the highest emitters in the remaining universe, these indices then select businesses with the lowest overall emissions.
Case Study: By excluding roughly one-third of the STOXX Europe 600 benchmark index, the STOXX Europe Low Carbon Footprint index achieved a carbon footprint 90% lower than the benchmark, with similar risk characteristics, while delivering 3-year annualized returns of 16.16% versus 12.66% from the STOXX Europe 600 index.
STOXX Global Climate Change Leaders
The STOXX Global Climate Change Leaders Index complements the STOXX Low Carbon index family. The first global index based on the Carbon Disclosure Project’s “A List” of leaders in carbon reduction, it comprises companies publicly committed to reducing their carbon footprint. The STOXX Global Climate Change Leaders Index achieved a carbon footprint 74% lower than the STOXX® Global 1800 benchmark index, while maintaining similar risk-return characteristics. We explore this unique concept which is unparalleled in the market and its particular investment case in a separate article.
The STOXX Low Carbon Index family allows investors to manage climate risk and incorporate carbon reduction into investment strategies without giving up returns or increasing the overall risk.
*Data sources used to calculate all STOXX Low Carbon indices are provided by CDP (reported data exclusively used for “STOXX Reported Low Carbon” and “STOXX Global Climate Change Leaders Index”) and South Pole Group (estimated data), who are widely established as the most reliable and professional sources of reported and estimated carbon-intensity data. Data considered comprises Scope 1, Scope 2 and Scope 3 emissions.
Willem John Keogh, Senior Product Development Manager
Nico Langedijk, CFA. Regional Director – Scandinavia, The Netherlands & Belgium (NL)
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