After a devastating weekend in Paris, it’s been announced that the 2015 Climate Change Summit will go ahead as planned, bringing together 118 world leaders to try and come to an agreement on how to tackle rising greenhouse gas emissions.
In advance of the Summit, Canada has become a little bit greener, at least on Bay Street. Three new S&P DJI indices were recently launched based on constituents of the S&P/TSX 60 Index.
The goal is to focus on companies with the lowest carbon footprint as well as those companies that don’t own fossil fuel reserves.
The S&P/TSX 60 Carbon Efficient Index, which measures the performances of S&P/TSX companies by overweighting or underweighting those with lower or higher levels of carbon emissions. The S&P/TSX 60 Carbon Efficient Select Index drills down a bit further on this concept by excluding companies with the largest relative carbon footprint. The magnitude of the carbon footprint is based on a calculation from London-based firm, Trucost, that looks at a company’s annual greenhouse gas emissions.
If those don’t appeal, you can also consider the S&P/TSX 60 Fossil Fuel Free Index that measures the performance of S&P/TSX companies that don’t own fossil fuel reserves. The research behind this index comes from RobecoSAM.
These indices are just the start—watch out for ETFs and other investment products designed to track them, making them available to a range of investors. Will they attract Canadian pension plans? ETFs based on these indices could be an alternative way to create a sleeve of exposure to a climate change focused investment within the Canadian market. It might be compelling for Ontario plans that are already under pressure to include information on their approach to incorporate environmental, social and governance factors in their Statements of Investment Policies and Procedures.
For pension plans looking to add a liquid layer of exposure to companies with a low carbon footprint or that don’t own fossil fuel reserves, ETFs based on these indices could be a good place to start.