Morningstar, a leading global index provider, announced on March 20 the launch of a series of new indexes called the Morningstar Low Carbon Transition Leaders (LCTL) Indexes. The indexes are being launched as part of a strategic collaboration between Morningstar Sustainalytics and Morningstar Indexes.
Comprising nine new (global, regional, and single country) benchmarks, the LCTL Indexes have been crafted to “help investors target a broad range of companies from every sector that are leading their peers in their readiness for — and action towards — transitioning to a low-carbon economy,” Morningstar explains, adding that the indexes are “underpinned by tangible, forward-looking metrics including the Sustainalytics Low Carbon Transition Ratings, which identify which companies are taking the most action toward aligning with net zero.”
Anya Solovieva, Morningstar Sustainalytics’ Director of Global Commercial Strategy and Climate Solutions, emphasizes the demand for such tools in navigating the transition to a low-carbon economy:
“Our clients are grappling with an increasingly complex investment landscape and trying to get better understand how the transition to a low carbon economy will impact markets and companies. They are asking for better indexes, tools and analysis to differentiate between companies that are taking steps to reduce greenhouse gas emissions and are well positioned to succeed in a low carbon economy, and which may be left behind. Incorporating our Low Carbon Transition Ratings within an index methodology enables our clients to apply a forward-looking climate transition risk lens to their global portfolios and invest in leaders across all sectors.”
Central to the methodology of the LCTL Indexes is the identification of climate transition leaders within each sector. This is done by “grouping companies from the parent index by sector, ranking them according to their composite Low Carbon Transition Leaders Score and capturing the top scoring 50% of each sector by market cap.”
As Morningstar notes, this score considers a company’s current carbon intensity and its management score from the Sustainalytics Low Carbon Transition Ratings, and the indexes emphasize companies that report carbon emissions and work on reducing their carbon intensity (as well as those whose activities help the environment).
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In other words, the companies that are included in the new indexes are “leading their peers in their approach to climate transition.” Morningstar lists two examples: Taiwan Semiconductor Manufacturing Company (TSMC) and Orsted, the largest Danish energy company and a world leader in decarbonization.
“Investors are focusing on the growing market impact of climate change, whether for managing investment risk or pursuing investment opportunity. Our clients want a simple and transparent way to identify and invest in the companies best positioned to thrive and survive in this scenario,” said Rob Edwards, Global Director of ESG Product Management at Morningstar Indexes. “Our Low Carbon Leaders are companies with management that understand how to evolve their business in this context to protect and grow their market share and innovation.”
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Featured Photo Credit: Дмитрий Трепольский.
