BBGI-oekom Low Carbon Risk Indices

Risks related to climate change remain largely underestimated for companies. Quantifying carbon risk helps to take into account the financial and reputational risk related to the environmental impact of their activities. From a financial point of view, the political progress already made paved the way for regulations that could drastically complicate business models and negatively impact the stock market value of companies involved in the extraction and conditioning of fossil fuels.

What is carbon risk?

Companies are also increasingly driven to respond to the negative externalities of their activity before public opinion. The Volkswagen case is just one example of the possible reputational consequences for established brands.

The legislative environment is evolving favorably in this area. In France, article 173 of the Ecological and Energetic Transition Act (TEE) introduces a reporting obligation on climate issues. The efforts of the Montreal Pledge or the United Nations Environment Program’s Portfolio Decarbonization Coalition have also done much to identify carbon risks.

We believe that savvy investors should take these risks into account in their international equity portfolios.

In this context, a complete analysis is needed to obtain an overview, not only of the carbon risks, but also of the companies’ performance with regard to climate issues.

A relevant benchmark for low carbon investments in international equities

BBGI Group has developed two “Low Carbon” indices: BBGI-oekom Low Carbon Risk Equal Weight Index and BBGI-okeom Low Carbon Risk Smart Beta Index.

BBGI-oekom Low Carbon Risk Index

Invest while controlling carbon risks

Our proprietary methodology is available through dedicated management mandates. Alternatively, they can replicate the BBGI-oekom Low Carbon Risk indices, or incorporate a tailor-made methodology adapted to the sensitivities of the investor.

Investment Universe

First step

Screening of fossil fuel exposure for producers and processors

  • Coal: > 30% of net sales and / or > 1% of world production
  • Oil: > 30% of net sales and / or > 1% of world production
  • Natural gas: > 30% of net sales and / or > 1% of world production
  • Combined activities, coal, oil and natural gas: > 30% of net sales
  • Hydraulic fracturing: > 10% of net sales
  • Oil sands: > 10% of net sales

Second step

Minimum Carbon risk rating set to 50

The universe contains only companies classified as “Carbon Performer” or “Carbon Leader” by oekom research.

Then companies are then sorted out by market capitalization (USD) and the 100 largest companies are selected for inclusion in the index.

Every quarter, the investment universe is re-evaluated according to the evolution of the Carbon Risk Ratings obtained by the companies. This is to reflect, in an evolutionary way and at all times, the precise risk of companies with regard to greenhouse gas emissions. On average, the turnover rate is comprised between 5 and 10%.

Update of our universe

Weighting

BBGI Group offers two “low carbon risk” indices. The two indices select the same companies but propose a different weighting scheme.

The BBGI-oekom Low Carbon Risk Equal Weight Index follows an “Equal weighting” methodology, while the BBGI-oekom Low Carbon Risk Smart Beta Index follows a proprietary weighting methodology reflecting the carbon risk level of companies.

31.12.2013 - 30.06.2018 Performances

Total return, in %

Annualized performance, in %

Press Articles (in French)

Bloomberg

BBGILCRE : BBGI-oekom Low Carbon Risk Equal Weight USD

BBGILCRS : BBGI-oekom Low Carbon Risk Smart Beta USD

More information is available on the French website