RobecoSAM recognizes that climate change is the biggest and most complex sustainability issue facing the world today, and is linked to many other sustainability challenges such as water scarcity, sustainable agribusiness, and resource efficiency. In an effort to facilitate the transition to a low-carbon economy, many investors are funding projects in the renewable energy sector or minimizing their exposure to large carbon emitters and companies owning fossil fuel reserves.
Eliminating exposure to companies that own fossil fuel reserves can also be seen as a hedge against climate-related risks, as these companies are likely to be the most affected by climate change regulation and climate-related structural changes. Research and empirical evidence show that many of the world’s fossil fuel reserves may be left unexploited as a result of tightening carbon regulation aimed at limiting global warming to 2 degrees. As a result, investors could find themselves holding stranded assets. In response to investors’ growing demand for investment tools that enable them to address this risk in their asset allocation, S&P Dow Jones Indices and RobecoSAM partnered to create a family of Fossil Fuel Free & Carbon Efficient Indices.
The S&P Fossil Fuel Free Index family includes only companies that do not hold fossil fuel reserves. Fossil fuel reserves are defined as economically and technically recoverable sources of crude oil, natural gas, and thermal coal. The index family’s exclusion rules are based on any ownership of fossil fuels, including for third-party and in-house power generation. The research for ownership of fossil fuel reserves is conducted by RobecoSAM across a number of priority GICS® sectors including oil & gas, coal & consumable fuels, as well as mining, materials and utilities.
To exclude companies owning fossil fuel reserves while also reducing the carbon footprint of eligible companies, S&P Dow Jones Indices and RobecoSAM launched the S&P Fossil Fuel Free Carbon Efficient Indices.
The index constituents remain the same as in its underlying S&P Fossil Fuel Free Index, however index weights are adjusted to reflect each company’s carbon footprint. The index re-weights it’s constituents to overweight carbon-efficient companies compared to less carbon-efficient companies within the same GICS® sector.
The S&P Global 1200 Fossil Fuel Free Index family is designed to measure the performance of companies in the S&P Global 1200 that do not own fossil fuel reserves. The family’s global investment universe is based on the seven main regional indices of the S&P Global 1200 index and applies the rules of the Fossil Fuel Free methodology:
For more information on the S&P Fossil Fuel Free Index, please see the
Watch as Julia Kochetygova (S&P Dow Jones Indices) and Guido Giese (RobecoSAM) discuss fossil fuel as an investment topic, as well as considering the engagement versus divestment debate.
The S&P Global 1200 Fossil Fuel Free Carbon Efficient Index family is designed to measure the performance of companies in the S&P Global 1200 that do not own fossil fuel reserves while overweighting and underweighting companies based on their levels of carbon emissions. For each index, all companies are subject to a ranking process within their GICS® sector. This ranking process determines a percentile rank for each company with respect to its carbon footprint. Constituent weight adjustments are made to reduce the portfolio’s overall exposure to carbon emissions compared to that of its underlying Fossil Fuel Free index.
These indices are built for investors who truly want to minimize their exposure to high-carbon emitters and hedge against climate-related risks, such as the risk of stranded assets.
The family’s global investment universe is based on the seven main regional indices of the S&P Global 1200 index and applies the rules of the Fossil Fuel Free Carbon Efficient methodology:
For more information on the S&P Fossil Fuel Free Carbon Efficient Indices, please see:
Francis Condon, Senior Analyst Mining/Oil & Gas, RobecoSAM, discusses how the investment community is responding to climate change and explores viable alternatives divestment.
The S&P 1200 Fossil Fuel Free Carbon Efficient Select Index Family is designed to measure the performance of a subset of companies in the S&P Global 1200 Fossil Fuel Free Index with relatively low carbon emissions. The constituents undergo an optimization process in order to create an index that closely tracks the returns of the S&P 1200 Fossil Fuel Free Index while excluding those companies that have the largest relative carbon footprints.
Companies with the highest 10% of carbon footprints in the underlying index are excluded from the index.
After the exclusion of the highest carbon emitters the portfolio is optimized. The objective of the optimization process is to design a portfolio that tracks the return of the underlying index within a 2% tracking error range.
The family’s global investment universe is based on the seven main regional indices of the S&P Global 1200 index and applies the rules of the Fossil Fuel Free Carbon Efficient Select methodology:
For more information on the S&P Fossil Fuel Free Carbon Efficient Select Indices, please see the