New Zealand’s Exchange (NZX) has partnered with S&P Dow Jones Indices to launch the country’s first carbon-efficient indices amid growing investor interest and global efforts in addressing climate change. The two new indices, S&P/NZX 50 Carbon Efficient Index and S&P/NZX 50 Portfolio Carbon Efficient Index, use Trucost’s environmental dataset to weigh companies listed on the NZX according to their carbon intensity and sector impact.
The indices seek to incentivize New Zealand companies to compare their carbon intensity to their industry-group peers around the world. Based on the carbon intensity of each constituent company, a company’s weight may be adjusted positively or negatively. However, a company will not be screened out from the index solely on the basis of its carbon intensity.
At launch, the S&P/NZX 50 Carbon Efficient Index and the S&P/NZX 50 Portfolio Carbon Efficient Index will be about 25% and 19% lighter on carbon emissions than their parent indices, respectively, while providing similar risk/return characteristics as the parent indices.
NZX chief executive Mark Peterson says many New Zealand companies are already strongly-focused on emissions and well-advanced in disclosing and discussing their approach to sustainability, and how they are managing ESG risks and opportunities. “We see these S&P/NZX Carbon Efficient indices as an incentive for New Zealand issuers that will help accelerate greater transparency,” he says.
Peterson says the new indices are inclusive – meaning that currently all S&P/NZX 50 companies are covered – and recognized disclosures of emissions, and comparatively better performance than global peers, will be reflected in weightings.
“An important role for New Zealand’s Exchange is to ensure capital can be invested with confidence into companies that provide opportunities for sustainable growth. There is global consensus around climate change – and, with carbon intensity a key concern, we expect investment products to be quickly created off the back of these indices,” he adds.
Reid Steadman, S&P DJI managing director and global head of ESG indices, says that there has been a rising demand from asset owners and investors for benchmarks that take into account companies’ carbon impacts, and the S&P Global Carbon Efficient Index Series fills the gap and offers locally listed companies a transparent tool and pathway for addressing climate risks.
“With growing awareness from both institutional and retail investors, companies are increasingly measuring and managing their environmental impacts. For example, since the launch of the S&P/JPX Carbon Efficient Index in 2018, we have seen a 34.6% increase in the number of Japanese companies that have disclosed their GHG emissions,” Steadman notes.