Two Australian superannuation funds have been speaking with the FTSE Group for a year about using their new indices that aim to reduce the investment risk associated with climate change.
FTSE, wholly owned by the London Stock Exchange, will not disclose which Australian funds they have been speaking with. But they are “two quite different in profile and who their beneficiaries are,” says David Harris, director responsible investment FTSE.
FTSE CDP Carbon Strategy Australia 200 Index and the FTSE CDP Carbon Strategy Australia 300 Index were formally launched yesterday. The indexes seek to take climate change into account.
The indexes start with a company’s market value and then adjust a company’s market value up or down in terms of the company’s negative or positive impact on climate change.
Utilities that are more reliant on coal will be underweighted by the FTSE indexes. Those utilities that rely on natural gas are overweighted.
Newcrest Mining Ltd. and Whitehaven Coal Ltd. are underweighted by the FTSE indexes. BHP Billiton Ltd. is overweighted.
Harris says BT’s pension fund, the largest company fund in the U.K., has allocated about 100 million pounds to a “carbon-tilted version of the U.K. all share index.”
“There are some active managers that would like to consider climate change factors,” says Harris.
“They are interested in alternative indexes as climate change considerations are factored into the benchmark make it easier for them to do so,” he says.
Harris says the climate change indexes were originally designed for so-called index funds such as those run by Vanguard.
“As the costs of climate change increase” the FTSE’s approach to indexes will be “more accepted” by asset managers, he says.
Australian superannuation funds have about $1.3 trillion in assets under management. The country is the fifth-biggest pension market in the world, according to analysts at Towers Watson.