Environmental Investment Organization

The not-for-profit Environmental Investment Organisation (EIO) is to launch a carbon ranking of the world's largest companies with the aim of helping fund managers build carbon emissions into their investment decisions.
The Environmental Tracking (ET) Carbon Rankings Index could be signed up as a live investment index by Standard & Poors if fund managers indicate their backing for the initiative.

Indexes – of which the FTSE100 is probably the best known in the UK – rank companies so as to enable fund managers to invest in proportion to the companies' position in the ranking. For example, FTSE100 companies are ranked by size of market capitalisation.

The Carbon Rankings Index similarly ranks companies by market capitalisation, but adds a weighting based on their emission reduction performance.

Ranking companies in this way encourages fund managers to invest in proportion to the companies' efforts to reduce emissions as well as their market capitalisation, the EIO said. In theory, the greater a company's effort to reduce emissions, the higher it appears in the index and therefore the greater the demand for its shares, driving up share price and rewarding the company for its initial efforts.

Conventional Socially Responsible Investment (SRI) funds tend to favour specific companies and exclude others based on varying ethical criteria. But Michael Gill, strategic director of the EIO, said the ET Carbon Index would mark the first time emissions metrics apply a uniform pressure on the share prices of all large companies.

So far EIO has built Indexes for the Global 1000, Global 800 and European, North American, Asia-Pacific and BRIC (Brazil, Russia, India and China) regions.
Each index uses publicly available emission data from companies' own reports and the Carbon Disclosure Project to rank all companies with over $3bn (£1.9bn) market capitalisation. The indexes are further weighted towards companies that h ave made available externally verified emissions data under all three scopes of the GHG Protocol covering direct and indirect emissions.

Companies which fail to declare emissions are given "inferred" scores based on a "worst-case" benchmark company in their index.

"Companies with inferred numbers can move up the index by making their data available to disprove our inferred figures," Gill told BusinessGreen.com.

Using the ET Carbon Ranking Index, the top three Global 1000 companies are Natura Cosmeticos of Brazil, Novozymes of Denmark and AstraZeneca of the UK. The bottom three are Petrobras of Brazil, Berkshire Hathaway, Warren Buffet's US investment house, and Industrial and Commercial Bank of China.

The next step for EIO is to promote the index among fund managers, Gill said.
"Signing a contract with S&P will cost real money and we will need the fees from the use of the index [by fund managers] to sustain that," he explained. "But [our fees] will be a quarter of that charged by other indexes."