The fund tracks the performance of the UK 350 Carbon Optimised Index, a benchmark developed exclusively by FTSE for Carbon Footprint Investments to favor carbon efficient companies. The aim is to help investors reduce the carbon intensity of their investments and therefore the associated risk from carbon taxes and fines.
The optimized fund and index replicate the established FTSE 350 Index in both sector weights and constituent companies. However, the investment into each company is adjusted on the basis of carbon efficiency relative to same sector peers. A company that emits less carbon per £million of revenue than the average for its sector is overweighted in the index. A company that is more carbon intensive than the sector average is underweighted. This is achieved whilst retaining performance.
The launch of this fund in January 2011 comes at a timely moment. The UK government’s October spending review introduced a new £12 per tonne tax on carbon dioxide emissions for companies consuming more than 6,000 mega-watt hours (MWh) of half-hourly metered electricity per annum. Coming into effect in April 2012, this levy will have a significant financial impact on carbon-intensive companies. By taking carbon efficiency into account the IFSL Carbon Footprint UK350 Equity Index Tracker Fund reduces the investment risk to investors from those companies hit hardest by the tax.
Richard Mattison, Chief Operating Officer at Trucost, said “the rising cost of energy and the risks associated with carbon exposure mean investors increasingly consider carbon efficiency to be an important factor in investment decisions. The Carbon Footprint UK350 fund will be of significant help in assisting investors to reduce the carbon exposure of their investments. Trucost has the world’s most comprehensive database of corporate carbon emissions and as such have been ideally placed to help Carbon Footprint Investments in building this new fund.”
Ralph Pettengell, Chief Executive at Carbon Footprint Investments, said: “Companies that take action to reduce their emissions invariably are those cutting costs and operating with better management, all of which can flow through to profitability, giving them competitive advantage and making them more robust long-term investments.
“Tightening regulation makes carbon dioxide polluters far more likely to lose their competitive advantage over time and much less compelling long-term investments.”
Trucost will be working further with Carbon Footprint Investments and BNP Paribas Investment Partners to develop a series of carbon-focused investment products. Mr Pettengell has already confirmed that a global version of the fund is planned.
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