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Devin D. Thorpe

Devin Thorpe

ERI Scientific Beta And South Pole Group Launch New Low-Carbon Indexes: 80% Carbon Footprint Reduction Of Equity Investments And Market Outperformance

Zurich, Switzerland and Boston, USA, 23 February 2016 – The launch of a new series of low carbon indexes by ERI Scientific Beta, the smart beta index provider set up by EDHEC Risk Institute, marks the practical realisation of the Risk Institute’s research efforts on reconciling financial and environmental performance. The launch represents an important moment for responsible finance as the results of the research will provide institutional investors with smart beta indexes that can reduce the carbon footprint of their equity investments by more than 80%. The smart beta indexes also outperform traditional market indexes by creating more than 50% additional value in the medium term. The new ERI Scientific Beta Low Carbon Multi-Beta Multi-Strategy Indexes are based on carbon emissions data provided by South Pole Group, a leading global sustainability solutions provider.

EDHEC Risk Institute’s approach in creating the smart beta indexes differs from numerous other methods in its objectives regarding short and medium term performance: while the majority of low carbon indexes aim to outperform stock markets in the long term by excluding companies with higher exposure to carbon, the short and medium term gains would generally produce performance similar to that of traditional stock market indexes. The green indexes produced by ERI Scientific Beta, on the other hand, aim to offer access to short and medium-term outperformance by using consensual results from financial research. The “green” premium will be able to play out as a long-term complement to performance: ERI Scientific Beta’s green and smart beta indexes already produce such outperformance performance by relying on the consensual state-of-the-art in academia in the area of factor investing and portfolio diversification.

The smart beta indexes will have a strong positive impact on the environment by excluding the largest carbon emitters, i.e., the companies with the highest carbon intensity in each sector of activity and the largest holders of fossil assets. By weighing on the value of the stocks of the excluded firms, the smart beta indexes pressurize the companies in question to change their strategy or their production process in order to be removed from the exclusion list.

“We are delighted to share our expertise with ERI Scientific Beta to produce low-carbon versions of their highly respected multi-smart factor indexes. The combination of low-carbon emissions and state-of-the-art smart factor indexes is a compelling opportunity for investors globally,” says Maximilian Horster, Partner, Financial Industry at South Pole Group.

A special workshop at the EDHEC-Risk Days conference at The Brewery in London on March 15 will address the theme of “Smart Beta & Low Carbon” by looking at the limitations of green stock picking. The workshop will examine the link between financial performance and carbon footprint reduction, and present the Scientific Beta Low Carbon Multi-Beta Multi-Strategy Indexes.

To receive a press pass to the workshop, please visit the registration website.

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