Standard & Poor’s continues its push to create new market indexes focused on the environment, announcing the S&P U.S. Carbon Efficient Index, designed to measure the performance of large cap, publicly-traded American firms whose carbon footprints are lower than their peers.
The new index provides a benchmark to the market, as represented by the parent S&P 500, while allowing investors to create financial products that seek to gain exposure from a more environmentally efficient perspective, S&P said in a press release.
“Organizations around the world are paying greater attention to the impact of greenhouse gases on our climate, as increasingly more investors consider carbon efficiency as an important investment theme,” said S&P’s David Blitzer in a statement.
The index is comprised of constituents of the S&P 500 ranked by carbon footprint, as measured by Trucost, an environmental data organization which has quantified the environmental impact of over 4,500 companies in various industries around the world. Trucost has the world’s largest bank of greenhouse gas emissions data and carbon footprints measure the impact that a company has on the environment in terms of the amount of greenhouse gas emissions produced.
For this particular index, Trucost uses publicly-disclosed information on greenhouse gas emissions, such as annual and sustainability reports as well as other publicly-disclosed information, and engages directly with companies to verify its calculations. Nine greenhouse gases are included in the analysis, which are then converted into tons of carbon dioxide equivalent.
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A company’s carbon footprint is calculated by taking that carbon dioxide equivalent and dividing it by annual revenues. Stocks in the S&P 500 are then ranked by carbon footprint to create the index. A smaller carbon footprint means lower contributions to climate change and less exposure to the rising costs of emitting carbon dioxide, S&P says in its explanation of the index’s methodology.
The top five companies by index weighting are Procter & Gamble, Chevron, Johnson & Johnson, AT&T and IBM. S&P already offers a number of “green investing” indexes, including Asia Water, Global Eco, Japan Eco and Global Water.
Last year, Trucost teamed up with Mercer to create a similar carbon footprint analysis tool for institutional investors.
Doug Watt is an Ottawa-based writer and editor and co-founder of SRI Monitor, a blog for socially responsible investors.
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