STOXX Ltd. introduced the STOXX® Low Carbon index family in February to help investors reduce the carbon footprint of their portfolios. For the development of the index family, we partnered with the non-profit organization CDP (former Carbon Disclosure Project) and South Pole Group to use their emission-related datasets.
Our team at STOXX recently talked to Susan Dreyer, Country Director DACH Region at CDP Europe, about the power of measurement and information disclosure, the investors’ role in addressing climate change and the effectiveness of our new indexes.
1. Over 800 investors, who represent more than a third of the world’s invested capital, use the research of CDP. How does CDP’s dataset help investors to make better investment decisions?
Susan Dreyer: CDP data enables investors to analyze the environmental risks and financial opportunities across their portfolios, which was also shown to generate sustainable and often superior shareholder returns. This equips them to engage their investment portfolio companies on natural capital use and help protect their assets against the risks from climate change and also future regulation in this areas, and alert company management to these risks. We are extremely happy that through the STOXX index partnership we can now add substantial index coverage for investor benchmarks, some of which are not only innovative but first ever of its kind.
2. Over the past year, a growing number of large asset owners globally have announced that they invest in low-carbon solutions to reduce their portfolios carbon footprint, or intend to do. Can you give us more insight into the asset owners’ attitude to low-carbon investing?
SD: For asset owners in particular, this topic is a question of fiduciary duties. Take pension funds, who are really in for the long-term: if you want to ensure your investments are sustainable in the long run, the sustainability of our economy and of the world we live in should be a natural concern for you. You cannot manage somebody’s money for his retirement, but in the meantime until he retires ruin the world through the investment choices with this person’s money. That is why asset owners are leading the way in the decarbonization movement, and it is good that they do that. Because they have the power to also push asset managers along this path. Asset owners are in addition very active in engaging with companies beyond divestment, which is an important transformational angle.
3. How effective do you think the STOXX Low Carbon Indices will be in the process of the transition to a low-carbon economy?
SD: The STOXX Low Carbon Indices are a major building block in that process. What we really like about them is they not only allow and encourage investment flows into companies with lower emission intensities within their sector or universe, but also track universes of companies who report through CDP. The latter ensures that companies follow the acknowledged standardized CDP reporting framework and as such strategy path. It is particularly exciting to see one of the world’s market leaders who owns famous indices like the EURO STOXX 50 or markets the DAX doing that. STOXX combined CDP and South Pole Group data into a comprehensive family of Low Carbon indices, catering different investor needs, helping them decarbonize and benefit from the transformation, which is good for them and good for the climate!
4. Our STOXX® Global Climate Change Leaders Index is based on CDP’s Global Climate A list, including companies that have been identified as leading in their actions to mitigate climate change. Additionally to direct and indirect emissions, the A list also tracks emissions related to a company’s supply chain. Why is it so important to also look at the so-called Scope 3 data when considering climate risk?
SD: Value chain emissions, in particular emissions from the supply chain and through the usage phase of products, can account up to 3 times, in some sectors even 8 times the direct emissions a company produces. So not including and managing the value chain would leave out a significant part of a company’s responsibility and influence. It would for instance allow companies to simply outsource high-emitting processes. But climate change is a global problem, one ton emitted in China does the same damage as one ton emitted in Europe. So we can only solve it, and we can only successfully decarbonize, if the value chain is part of the management. Companies awarded the best-possible CDP Climate Score A and thus tracked in the STOXX Global Climate Change Leaders Index are showcasing how this can be done.