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.

Selective approach

Morningstar is using a selective approach to identify companies within various sectors that are best positioned for a low-carbon future.

This means that while the Morningstar Global Markets Low Carbon Risk Index is tilted towards growth sectors, with an overweight to technology and healthcare stocks and lower weightings in energy, materials, and utilities, it has an above-market exposure to the industrials sector due to certain industrials players adapting to survive in the low-carbon economy.

The Morningstar Global Markets Low Carbon Risk Index was launched in November 2018 and has back-tested returns from December 2012, over which time it has slightly outperformed the market, the investment research firm said.

However, Morningstar caveated that the index will not always outperform, evidenced by its underperformance of its parent index in 2016 and 2017.

Anastasia Georgiou, director of product management at Morningstar, added: "Helping investors with the analysis of carbon risk is the next step for Morningstar. Climate change is centre stage. At the World Economic Forum in Davos recently, the members put climate change as a central concern and regulators have said it is the next big financial risk."

Morningstar acquired a 40% ownership stake in ESG research and ratings firm Sustainalytics in July 2017.