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UBS launches Europe Carbon Optimized Index
Index matches benchmark returns with 30-40% lower carbon footprint
UBS announced today that it had launched the UBS Europe Carbon Optimized Index, the first carbon tracker index to provide investors with index returns on a lower carbon footprint portfolio.
The UBS Europe Carbon Optimized Index contains the same 600 companies as the benchmark, the DJ Stoxx 600 Index. It matches the Sector Weightings of the Benchmark, but over-weights the carbon-efficient and under-weights the carbon-inefficient companies, based on data from Trucost. The carbon footprint of the index is therefore 30-40% lower versus the benchmark but offers similar returns.
The UBS Europe Carbon Optimized Index is the first carbon tracker index. For relative return investors whose performance is tested against broad benchmarks, the index should potentially deliver a superior risk/reward profile when compared to thematic funds, by optimising across the entire market. Existing "green" investments have either used a negative screening process, (excluding high carbon sectors like oil & gas) or have focused on solution providers, (alternative energy). However, to be fully invested in equities, it makes sense in UBS's view, especially in current market conditions, to target carbon-efficient companies across all sectors. The UBS Europe Carbon Optimized Index maintains neutral sector weightings and in so doing, preserves financial efficiency relative to the benchmark. Back testing has shown the index would have produced positive relative returns since December 2006 versus the DJ Stoxx 600, with a 37% lower carbon footprint.
Julie Hudson, Head of Socially Responsible Investment (SRI) Research at UBS said:
"In an environment where governments are increasingly taxing and regulating GHG emissions, which has a real financial impact on businesses, there is a growing investor appetite for products that can capitalise on carbon-efficiency. In general, firms having a low carbon footprint compared with that of their peers are expected to have a financial advantage, all being equal."
Simon Thomas, Chief Executive of Trucost, said,
"As the first carbon tracker index, the UBS Europe Carbon Optimized Index enables investors to factor in companies' carbon exposure in their portfolios while matching the benchmark's returns. This opportunity to favour carbon-efficient companies in all industries is an important first step to integrate carbon performance into mainstream financial markets."
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