Although the US had the lowest carbon footprint as measured by major stock indices around the world, and emerging markets had the highest, Latin America is the region best placed to meet an important climate change target.
Countries committed at the 2015 UN Climate Conference in Paris to limit the rise in global temperatures to no more than 2°C above pre-industrial levels.
S&P Dow Jones Indices (S&PDJI) found that the S&P Latin America 40, whilst one of the most carbon intensive indices, was potentially best positioned to meet the global 2°C scenario, as measured by its carbon footprint.
The index is significantly weighted towards energy, materials, and utilities companies, which comprise 33% of total market capitalisation. Therefore, funds tracking this index may be highly exposed to carbon-intensive sectors, said S&PDJI’s report, ‘The Carbon Scorecard’, produced with Trucost.
By contrast, those sectors in the S&P 500 account for 14% of total market cap, the report added.
The index with the lowest carbon footprint was the S&P 500 Growth, followed by the main S&P 500 itself.
Emerging markets had the most carbon intensive indices with the S&P/IFCI ranking the highest carbon footprint. The S&P/IFCI is a liquid and investable subset of the S&P Emerging index, with the addition of South Korea.
The S&P/ASX All Australian 50 had the highest level of embedded emissions in proven and probable fossil fuel reserves and the greatest percentage of revenues derived from coal-based activities, making it the most exposed index to potential stranded assets.
The S&P Topix 150 representing Japan was the least exposed to fossil fuel reserve emissions, with just 655 tonnes of apportioned emissions embedded in its constituents’ fossil fuel reserves.
S&PDJI and Trucost, which is an S&PDJI subsidiary that focuses on aspects of responsible investing, produced the report in light of a recommendation from the Financial Stability Board that asset managers report on the carbon exposure in their portfolios to manage climate-related risks.
Dr. Richard Mattison, CEO, Trucost, said: “The S&P Dow Jones Indices Carbon Scorecard report demonstrates the range of metrics that market participants now use to understand carbon risk and opportunities. Many large institutional investors are incorporating these criteria in their investment processes and carbon is increasingly being considered as an investment factor.”
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