Morningstar unveils suite of low carbon risk indices

Large and mid caps

Morningstar has teamed up with Sustainalytics to launch a suite of low carbon risk indices.

The Morningstar Low Carbon Risk Index Family uses Sustainalytics' Carbon Risk Rating to offer exposure to global companies that have low carbon risk and low fossil fuel exposure.

Companies in the indices are large and mid caps screened from their equivalent wider Morningstar index, meaning the constituents of the Morningstar Global Markets Low Carbon Risk Index come from the Morningstar Global Markets Large-Mid Cap Index.

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Each company is subjected to a carbon risk assessment by Sustainalytics, in which Morningstar is a major stakeholder. Sustainalytics provides carbon research on more than 4,000 companies across 130 industry groups.

The indices are built using the 12-month trailing averages of both the Morningstar Portfolio Carbon Risk Score, which was introduced in 2018, and the Morningstar Portfolio Fossil Fuel Involvement, a weighted average of companies' exposure to fossil-fuel-intensive industries.

The number of stocks in each index is variable and the indices will be rebalanced quarterly in March, June, September and December, while membership will be review in June and December.

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Sanjay Arya, head of indexes at Morningstar, said: "Climate change is a significant challenge that impacts investors. This new family of indexes will empower investors to evaluate and invest in companies that are adapting to the low-carbon economy and managing their businesses strategically for the long term.

"Whether motivated by environmental concerns, fiduciary obligations or investment outcomes, I believe the new indexes offer more options to lower carbon exposure without compromising returns."

Dan Lefkovitz, strategist for Morningstar Indexes, added: "These indexes go beyond the common approach of carbon footprinting, which reflects current emissions and is just a starting point for analysis of carbon risk.

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"Our new Morningstar Low Carbon Risk Indexes are the first to leverage Sustanalytics' Carbon Risk Ratings - which assesses not only a company's overall carbon exposure but also its management of that exposure - to ultimately evaluate whether a company is positioned to survive and thrive in a low-carbon economy."