Fossil Free Indexes LLC (FFI), an environmental, social and governance (ESG) index and research company, has released its first index covering the US equity markets.
Fossil Free Indexes US (FFIUS), based on the S&P 500 and screened to exclude the largest oil, gas and coal companies, is the first index to leverage the long-term growth of US large cap indices while protecting investors from the risk of a carbon bubble. The company says evidence over the past decade indicates a high correlation between returns on FFIUS and the S&P 500, suggesting that index investors need not sacrifice returns when choosing not to invest in the biggest carbon resource companies.
FFIUS uses Standard and Poor's Dow Jones Indices as its calculation agent. The index can be used as a benchmark, and an investable product based on the index will be available in the coming months.
"FFIUS is the first of its kind in the US. We're primed to give investors a unique opportunity to invest in the broad market while avoiding the increasing risk of long-term investment in fossil fuels," said Stuart Braman, founder & CEO of Fossil Free Indexes, a divestment advocacy leader. "The science and effects of climate change are clear. Our products will be common-sense, accessible, low-risk options for institutions and individuals to help protect the planet along with their investments."
Experienced investors increasingly seek to direct their assets to fight climate change. Seattle-based venture capitalist Mike Slade of Second Avenue Partners noted, "Having the proven power of a broad index coupled with the removal of the risk associated with fossil reserves-based companies is a great investment strategy going forward. I plan to invest in the FFIUS index as soon as the investable product is available."
A steady stream of political actions, regulatory announcements, scientific reports and market events, including President Obama's recent 2030 deadline for 30 percent reduction in carbon emissions by US power plants, highlights the risk of fossil fuel investments. The latest such action is this week's release of Risky Business, by the Bloomberg-Paulson-Steyer-led group outlining the impact of climate risk on the US.
In February, half-a-dozen investors filed shareholder resolutions with ten fossil fuel companies, including Exxon Mobil and Chevron, seeking an explanation of their strategies for competing as the world moves toward a low-carbon global economy. The resolutions focused on potential carbon asset risk, or the possibility that these companies’ present and future fossil fuel-related assets will lose value as various market factors — such as energy efficiency, renewable energy, fuel economy, fuel switching, carbon pollution standards, efforts to curb air pollution and climate policy — increasingly threaten demand for fossil fuels and related infrastructure.