• There is a recommendation from the Financial Stability Board that asset managers now report on the carbon exposure in their portfolios to manage climate-related risks.
• This report assesses the carbon risks and opportunities of major global equity indices.
• A range of metrics reveals the carbon footprint of each index, alongside exposure to fossil fuels, stranded assets, and renewable energy, as well as the energy mix alignment with 2°C scenarios.
• The benchmark index with the lowest carbon footprint as of Dec. 31, 2016, was the S&P 500® Growth.
• The S&P/ASX All Australian 50 had the highest level of embedded emissions in proven and probable fossil fuel r eserves and the greatest percentage of revenues derived from coal-based activities, making it the most exposed index to potential stranded assets.
• The S&P Latin America 40 is potentially best positioned to meet a global 2°C energy mix scenario for 2030 and 2050.
There has been a market inflection with regard to the integration of climate risk and opportunities analysis into investment decisions. At the 21st Conference of the Parties of the UN FCCC in December 2015, 197 member states negotiated an agreement to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” and to limit the rise in global temperatures to no more than 2°C above pre-industrial levels. When the agreement reached the threshold for entry into force the following year, the trajectory was set for a global low carbon economy.