FTSE launched new indices that rate the carbon strategies based on their exposure to climate change-related risks, reports Envido.
FTSE Group this week launched new indices designed to help investors track firms' ability to manage climate change risks. The launch follows the BP crisis in the Gulf of Mexico that tossed the spotlight on institutional investors' careless approach to environmental risk.
The FTSE CDP Carbon Strategy All-Share Index and the FTSE CDP Carbon Strategy 350 Index are the two new indices that have been developed in partnership with the Carbon Disclosure Project (CDP) investor group and analyst firm ENDS Carbon.
They work by analyzing the carbon strategies and 'tilting' their rating based on their exposure to climate change-related risks, such as proposed carbon pricing mechanisms. For example, companies in carbon-intensive sectors, such as aviation, oil and gas, mining, and electric power, will be subject to 'tilts' that are 10 times greater than firms operating in lower risk industries.
The new indices should help drive investors towards more environmentally sustainable firms
As a result investors will be able to quickly assess which firms and sectors are most at risk from climate change-related impacts. This forward-looking analysis will show how companies will be impacted by climate change in the future, and those demonstrating strong carbon performances will benefit from higher rankings within the indices.
Ifti Akbar, managing director at Envido said. 'In every sector some companies have developed a stronger position on climate change than others, and as the world's governments tighten carbon regulations, these companies should outperform their competitors. The new index series would help investors to map read complex climate change risks and carbon strategies. '
James Cameron, vice-chairman of investment firm Climate Change Capital, welcomed the new indices predicting that they should d help drive investors towards more environmentally sustainable firms. He said that there is a need of capital to flow at scale into the solutions to climate change, and the indices offer the support for good quality data intelligently interpreted.