S&P Fossil Fuel Free index family

S&P Fossil Fuel Free Indices

Investment objective

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.
 
The S&P Fossil Fuel Free & Carbon Efficient Index families were developed to meet investors’ growing demand for low-carbon and fossil fuel free investment vehicles. They are suitable for investors who wish to hedge against exposures to climate change-related risks, such as the risk of stranded assets, and/or who wish to reduce the carbon footprint of their portfolios, and contribute to a transition to a low-carbon economy.

S&P Global 1200 Fossil Fuel Free Indices
The S&P 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. 
 
S&P Global 1200 Fossil Fuel Free Carbon Efficient Indices
The S&P 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.
 
S&P Fossil Fuel Free Carbon Efficient Select Indices
The S&P 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 excluding companies with the top 10% relative carbon footprints.
 
 
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Methodology

All three index families − S&P Fossil Fuel Free, the S&P Fossil Fuel Free Carbon Efficient, and the S&P Fossil Fuel Free Carbon Efficient Select − exclude companies that hold fossil fuel reserves, which are defined as economically and technically recoverable sources of crude oil, natural gas, and thermal coal. The index families’ 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.
 
S&P Fossil Fuel Free Carbon Efficient Indices
The index constituents remain the same as those in the underlying S&P Fossil Fuel Free Index; however, index weights are adjusted to reflect each company’s carbon footprint.

All companies within each GICS sector are ranked according to their carbon footprint. The weights of the constituents are adjusted to reduce the portfolio’s overall carbon footprint.

The index re-weights its constituents to overweight carbon-efficient companies compared to less carbon-efficient companies within the same GICS sector.
The resulting index has a lower exposure to carbon emissions than the underlying Fossil Fuel Free index.

 
S&P Fossil Fuel Free Carbon Efficient Select Indices
In addition to excluding companies that hold fossil fuel reserves, S&P Fossil Fuel Free Carbon Efficient Select Indices also exclude companies with the largest relative carbon footprints.


All remaining companies within each GICS sector are ranked according to their carbon footprint. Companies with the top 10% of carbon footprints in the underlying index are excluded from the index. After the exclusion of the highest carbon emitters, the index is optimized to design a portfolio that tracks the return of the underlying broad market index within a 2% tracking error range.
 
Each index is weighted by float-adjusted market capitalization and is rebalanced quarterly after the close of business on the third Friday of March, June, September, and December.

Index family

The S&P Fossil Fuel Free, S&P Fossil Fuel Free Carbon Efficient, and S&P Fossil Fuel Free Carbon Efficient Select Index families’ global investment universe is based on the seven main regional indices of the S&P Global 1200 index: