Low-Carbon Index Benchmarking

The demand for low-carbon indices and for indices excluding fossil fuels companies has risen recently. To satisfy this demand, major providers of stock market indices began developing customized indices.

Two types of indices can be observed: divestment of holdings in the fossil fuel sector with ex-fossil fuel indices (for instance MSCI ex Fossil Fuels or MSCI ex Coal) and the financing of a multi-sector, low-carbon economy with low-carbon indices (for instance the MSCI Low Carbon Leaders).

From the perspective of energy transition, these low-carbon indices are similar to the best-in-class methodologies for fighting climate change that are used in active management. They eliminate the most polluting companies and significantly reduce CO2 emissions by removing a small number of companies, thus allowing investors to keep their sector allocation.

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