For those who believe world leaders will eventually get around to imposing legislation to create a low carbon future, there is yet another carbon index. This latest one, the Global Carbon Equity Index, allows investors to gain equity exposure in those mid- to large-cap companies best equipped to tackle a world of rising carbon emissions and tougher climate legislation.
It seems, despite the failure of world leaders to make significant strides in Copenhagen, and the continued delays in the US Congress, business still believes carbon legislation is coming. So who is making the most strides in preparing for it? For the first round, the sectors included were utilities, basic materials, industrial, consumer, energy and technology. This was decided by the developers of the index – ECPI, the leading European sustainability research and ESG index construction company, in partnership with global management consultancy Arthur D Little. The index lists 40 so-called carbon-savvy public companies, with top performers listed as Johnson & Johnson, Akzo Nobel, Alfa Laval, Eni, and VALE. The creators say they chose the companies based on extensive analysis of their carbon emissions and mitigation strategies. They come from the most carbon-intensive sectors.
The carbon rating determines the strength of the companies’ strategy for dealing with the future physical, reputational, market and, more importantly, the regulatory risks of climate legislation. Mitigating these risks, the creators say, will yield greater financial returns, which the index reflects.
Back testing the index’s performance, they say, showed it outperformed the general market (as represented by MSCI World Index) by 68.78 per cent between 2006 to end of 2009. The importance of this in the words of Paolo Sardi, chief executive of ECPI Luxembourg:
The ECPI Global Carbon Equity Index has proven to outperform the market in both bull and bear markets, even through one of the worst recessions in history. Regular outperformance will not only provide investors with financial security but help dispel the myth that sustainable investment issues are only a concern for investors in strong, non-turbulent market conditions.
Davide Vassallo, director of Arthur D Little’s Global Sustainability team, said the index highlights the variety of approaches companies can take to managing their carbon emissions:
The 40 brands listed represent the full spectrum of solutions, from practical to innovative, that span operational processes, supply chain and business strategy. These businesses are going far beyond compliance to address their clients’ future needs.
So it sounds like the field is open to anyone and everyone to eventually get onto the index, if they try hard enough. And with the public increasingly signalling its support for a low carbon future, this index gives companies yet one more reason to act.