Choices Expand for "Green" Investors

Investment indexes with a socially responsible tone abound, but it appears there is always room for more.

By James Hyatt

In February, JPMorgan and Innovest Strategic Value Advisors announced the first bond index “designed to address the risks of global warming.”

The new JPMorgan Environmental Index-Carbon Beta is intended to take into account risks and opportunities bond issuers face as they address climate change.

The new index is based on JPMorgan’s U.S. Liquid Index, a benchmark for the U.S. investment-grade corporate bond market. Then the calculations are adjusted using Innovest’s environmental analysis.

“For example,” the companies said, “within the automotive sector, an automaker that has curbed emissions from its plants and produces a fleet of vehicles with relatively high fuel efficiency might be overweighted compared to an automaker that has not taken such steps.”

They said that back-testing confirms that the Carbon Beta Index closely replicates the characteristics of the U.S. Liquid Index while reducing investor exposure to financial risks arising from global warming.

Put another way, the index “overweights the securities of issuers judged to have relatively lower risk due to climate change, and underweights issuers with relatively higher risks.”

Jan. 31, the new Index included 1,126 bonds from more than 200 corporate issuers representing $1.1 trillion in market value.

Another major index provider, Standard & Poor’s, has launched three alternative market indexes under its Global Thematic Index Series:

• The S&P Global Clean Energy Index, which follows 30 stocks in 10 countries in clean energy production, technology and equipment.
• The S&P Global Water Index, which follows 50 companies in 14 countries that are involved in water utilities and water-related infrastructure, equipment and materials.
• The S&P Global Infrastructure Index, which follows 75 companies in 22 countries involved in transportation, utilities and energy.