FTSE and BlackRock launch carbon-free index
A new set of benchmarked indices – developed by FTSE Group – promises to actively exclude companies directly linked to the fossil fuel industry, leading the way for the introduction of a ‘total exclusion model’ for environmentally unfriendly stocks.
The FTSE Developed ex Fossil Fuels Index Series will automatically exclude companies linked to ‘exploration, ownership or extraction’ of carbon reserves.
At the same time, BlackRock has announced it will launch a product that will track the new benchmark using startup capital from the Natural Resources Defense Council (NRDC), a non-profit organization that works to protect the global environment. A press release from FTSE Group says the index series was also designed with the ‘close co-operation’ of both groups.
NRDC’s president, Frances Beinecke, says the initiative was launched with future generations in mind. ‘We want to move toward a world that no longer relies on dirty energy that threatens our future, damages our communities and destabilizes our climate,’ she says. ‘A fossil fuel-free future is where we see opportunity and promise, and that’s where NRDC wants to direct our financial resources.’
The FTSE index series is rooted in three key exclusion criteria applicable across the 7,400 companies currently listed on the FTSE’s indices. Companies are excluded from being listed on the index if:
- They are classified as being in the exploration & production, integrated oil & gas, coal mining or general mining sector
- They have revenues that arise from coal mining or crude petroleum and natural gas exploration and production
- They have ‘proved and probable’ reserves in coal, oil or gas, as reported in a company’s annual report or account.
A spokesperson for FTSE Group says the index was created ‘in response to demand from our customers for a benchmark that excludes fossil fuel-linked stocks. Our aim as a business is to provide products to meet our customers’ needs and give them choice, so if there is further demand for more ‘green’ indices that exclude other sectors, we could be happy to create them in partnership with our clients.’
The launch of the index is the latest in a number of environmentally minded developments to come from the FTSE, after its launch of the FTSE4Good ESG Ratings system in 2011 and its Environmental Market Series in 2008.
The group’s CEO, Mark Makepeace, adds that the new indices are part of the FTSE’s ongoing plans to reflect the values of its customers. ‘Innovation is at the core of all our products and we are pleased to develop this global benchmark to implement total exclusion of companies linked to this theme,’ he concludes.