FTSE Group has partnered with the Carbon Disclosure Project (CDP) and ENDS Carbon, a provider of carbon performance benchmarking and ratings, for the launch of four new indices within the FTSE CDP Carbon Strategy Index Series. These have been designed to help investors reduce the long-term investment risks associated with climate change and related regulation.
"Institutional investors have demonstrated an appetite for using alternative index-weighting methodologies, including the incorporation of risk-based approaches. At the same time, they are under increasing pressure to demonstrate action on integrating climate change and carbon-related risks in their portfolios," said David Harris (pictured), director of responsible investment at FTSE Group. "The FTSE CDP Carbon Strategy Index Series gives investors the ability to redefine passive equity strategies in light of future carbon risks, while maintaining close performance tracking of the underlying FTSE benchmark."
The new indices, which join the FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index in the series, include the FTSE CDP Carbon Strategy Australia 200, FTSE CDP Carbon Strategy Australia 300, FTSE CDP Carbon Strategy Europe and FTSE CDP Carbon Strategy Japan.
According to FTSE Group, the launch is a timely response to the concerns of a large number of pension funds and asset managers, which are seeking to incorporate carbon risks into their investment strategy.
The series has been created for core equity holdings by taking an established FTSE index and evaluating each company within the index to identify its level of exposure to future carbon risks. The companies are then reweighted based on their level of carbon risk.
By remaining 'sector neutral' and tilting weights rather than excluding companies, added FTSE Group, the new indices achieve a low tracking error relative to their underlying index.