Reallocate capital from high-carbon to low-carbon companies.
ET Index Research provides investors with tools to help avoid catastrophic climate change and generate sustainable returns. The current focus is global warming as this is the most time-sensitive existential threat faced by human civilisation. This is the purpose of the ET Carbon Rankings and corresponding ET Low Carbon & Fossil Free Index Series.
Environmental Tracking is a systematic market mechanism designed to reallocate capital from high-carbon to low-carbon companies in order to create the necessary incentive for companies to expedite the shift towards a carbon neutral economy.
Practically, it works by publicly ranking companies and reweighting them in investable indexes according to their position in the ranking. For companies, the only way to gain a greater weighting within the indexes is to move up the rankings.
As the share of global capital allocated to passive index investing continues to grow, the ability for index benchmarks to influence company behaviour and drive emissions reductions across the economy will increase.
Longer term, ET Index Research will add additional Environmental, Social and Governance (ESG) metrics to the Environmental Tracking index suite. The underlying mechanism will remain the same: companies will be publicly ranked according to their publicly disclosed ESG metrics; and ET Indexes will reweight companies according to their position in these public, fully transparent rankings. The objective is to provide investors with a systematic, transparent tool to incentivise a sustainable form of corporate stewardship that acts for people, planet and profit.
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