FTSE Russell has launched a new index that reduces exposure within the index to companies associated with fossil fuels while also increasing exposure within the index to companies engaged in the transition to a green economy.
To gain this exposure, the FTSE Divest-Invest Developed 200 Index incorporates data captured by FTSE Russell’s innovative new green revenue data model, called LCE, which is set to launch publicly in the coming months. BNP Paribas has licensed the new index to create swaps and structured products. The FTSE Divest-Invest Developed 200 Index is constructed from the largest 200 companies in the FTSE Developed All-Cap Index. All constituents of the underlying index are eligible for inclusion, except for those in the following Industrial Classification Benchmark (ICB) sectors and sub-sectors: Oil & Gas Producers, Oil Equipment Services & Distribution Providers and Coal & General Mining. These excluded companies are replaced by green companies whose weights are based on their Low Carbon Economy Industrial Indicator (LOWCII) factor. This factor is defined as a constituent’s ratio of its green revenues to its total revenues. This data is sourced from FTSE Russell’s LCE model, which is designed to capture changes in the revenue mix of companies as they increasingly provide goods, products and services that enable the world to adapt to, mitigate or remediate the impacts of climate change, resource depletion or environmental erosion. Three of the largest constituents of the FTSE Divest-Invest Developed 200 Index with green revenues are Waste Management (+2.13%), Tesla Motors (+1.60%) and Vestas Wind Systems (+1.25%).
Kevin Bourne, Managing Director, Database Services at FTSE Russell, says: “We’ve seen a rapid expansion of the green businesses of many companies around the world. What’s been missing from measures of the ‘green transition’ is exposure to this growth side of the opportunity. FTSE Russell is delighted to launch this exciting and original product, the FTSE Divest-Invest Developed 200 Index. There is significant demand to capture the full picture of the transition in portfolios and financial products, reflected in BNP Paribas licensing the index.” Neven Graillat, Global Head of Sustainable Investment Solutions, Global Markets, BNP Paribas, says: “The agreement adopted at last November’s COP21 conference in Paris was recognised as a political success and it has helped to put climate risk at the top of the agenda for investors. At BNP Paribas, we have raised more than EUR3bn in sustainable equity solutions in the last three years including EUR750m in the last quarter alone from investors looking to reduce the carbon risk in their portfolios. We are therefore delighted to collaborate with FTSE Russell to deploy this new climate index solution. For the first time, investors are being offered a way to assess companies based on their green revenues. Using data modelled by FTSE’s LCE, the index offers an innovative tool to help manage investors’ carbon risk while tilting towards companies engaged in the transition to a greener economy.” Cian Fitzgerald, Head of UK Institutional Clients, Global Markets, BNP Paribas, says: “We see increasing appetite from our institutional investor client-base wishing to address climate change in their investment process. This index will enable us to bring to market products which satisfy the investment requirements of our UK institutional clients.” The LOWCII factors for each constituent will be updated annually, preceding the September review of the FTSE Developed All-Cap Index. The FTSE Divest-Invest Developed 200 Index is the first product to be developed following the creation of FTSE Russell’s innovative LCE database, which is set to be publicly launched in the coming months.