S&P Dow Jones Indices is committed to providing transparency to markets and publishing relevant environmental metrics on indices. A range of metrics reveals the carbon footprint of each index, alongside exposure to fossil fuels, stranded assets, and renewable energy. A new metric has been added this year: carbon price risk exposure. This metric, developed by Trucost, helps investors understand how companies, and ultimately portfolios and indices, are exposed to the risk of governments imposing a price on carbon emissions.
KEY FINDINGS
- Absolute emissions decreased for the S&P Asia 50, S&P Europe 350, S&P Global 1200, S&P Latin America 40, S&P/ASX All Australian 50, and S&P TOPIX 150.
- In 2017, all indices increased their share of renewable power generation and decreased their share of fossil fuel power generation, with the exceptions of the S&P/ASX All Australian 50 and S&P Asia 50.
- The S&P/TOPIX 150 had the smallest coal exposure score and is well positioned in the face of punitive climate legislation.
- The carbon intensity of every index assessed increased in 2017, except for the S&P Asia 50, which decreased its carbon intensity by 26%.
- In 2017, the index with the highest carbon intensity was the S&P/TSX 60 whereas in 2016 it was the S&P Asia 50.
- Within the S&P/IFCI, 26% of earnings of the index’s listed companies were at risk from 2030 carbon pricing regimes according to the Trucost carbon pricing model.
- S&P Dow Jones Indices is committed to providing index solutions that provide choices and reflect low-carbon options. When we compare indices with their carbon-focused counterparts, the low-carbon versions actually outperformed the benchmark over a five-year period in most cases.
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INTRODUCTION
The S&P Dow Jones Indices Carbon Scorecard stands as a barometer for the carbon intensity of financial markets today and its relation to the direction of the economy
As regulators strengthen policies that support the growth of “sustainable” economies, the investment community will rely on transparent markets to manage risk and capitalize on sustainable development opportunities. How companies can adapt their products and services to changing consumer demands and how they are exposed to regulations that seek to put a price on carbon are among the key questions to which shareholders, lenders, and insurers now seek answers.
In addition, financial regulators are moving to embed sustainable finance at the core of capital markets. Earlier this year, the EU High Level Expert Group on Sustainable Finance, which S&P Global was proud to be a member of, recommended a wide range of policy interventions. In response, the EU published its Action Plan on Sustainable Finance, which introduced a raft of proposed regulatory measures that will, if implemented, impose greater emphasis on investor duties and transparency in markets.Such moves are mirrored across the world. For example, the U.S.Department of Labor recently updated its guidance on the integration of ESG in the investment process, and the UK is seeking to strengthen pension regulations. As such, we have seen increasing market participant interest in understanding the exposure of their investments to a range of carbon indicators.
Understanding carbon risks and their potential financial impact is crucial if we are to avoid sudden and inconsistent write-downs of assets and redirect capital toward activities that are aligned with global climate commitments. Mandatory and voluntary guidance have acted as a crutch to encourage behavioral change, and it is now considered best practice to report on portfolio exposure to carbon even in markets where guidance is lacking. Investors with over USD 60 trillion in AUM now report their carbon exposure.1
S&P Dow Jones Indices published its Carbon Scorecard for the first time in 2015 to show the exposure of major global benchmarks to carbon risks. Subsequent publications show how quickly the market (measured as the largest companies in each region) is transitioning to a lower-carbon economy.
For the first time, we have added two fixed income benchmarks to the 10 equity benchmarks assessed by the Carbon Scorecard to provide a broader perspective on the carbon exposure of global financial markets.
