TSX launches 3 climate change indexes to track environmental footprint
Indexes created Thursday aren't investment vehicles themselves, but will likely be tracked by others
The Toronto Stock Exchange will create three new subindexes designed to track the environmental impact of companies that trade on the exchange.
"We are pleased to launch three new climate change-related [indexes] for Canadian market participants," TMX Datalinx president Eric Sinclair said. "The new [indexes] recognize Toronto Stock Exchange issuers included in the S&P/TSX 60 for their efforts and performance in managing their environmental impact. As awareness of the effect of carbon emissions continues to grow, we believe investors will value these index offerings."
The first subindex, called the S&P/TSX 60 Carbon Efficient Index, will be a collection of companies on the TSX 60 — a group of 60 of the largest companies in Canada — and give them a weighting in the index based on their carbon emissions. Companies with low emissions will have a greater share of the index. Companies that emit a proportionately larger amount of carbon will be underweighted.
A second index, the S&P/TSX 60 Carbon Efficient Select Index will function in much the same way but exclude those companies with the largest relative carbon footprint. "The index is optimized so that it closely tracks the returns of the S&P/TSX 60," the exchange said in a statement.
British data company Trucost Plc will be responsible with tracking any given company's annual greenhouse gas (GHG) emissions for those two.
The third index, called the S&P/TSX 60 Fossil Fuel Free Index is designed to measure the financial performance of companies in the S&P/TSX 60 that do not own fossil fuel reserves. Those companies will be included and monitored based on research from RobecoSAM, a data firm focused exclusively on sustainable investing.
More green ETFs may come
Strictly speaking, the subindexes being created Thursday aren't investment vehicles that investors can directly buy or sell. They are more of a guidepost to monitor how companies are performing based on certain criteria, the same way other subindexes monitor their performance on other financial metrics.
But typically, financial product makers and mutual fund companies end up creating products designed to track the indexes that stock exchanges create. So a new round of climate-change focused ETFs and mutual funds that investors can buy and sell are a distinct possibility in the near future.
"With an increasing number of Canadian investors basing their investment decisions on how companies manage environmental issues, this S&P/TSX index series will provide an important and relevant benchmark within this space," the head of S&P's sustainability indexes, Julia Kochetygova, said in a statement.