EDHEC Risk Institute has been conducting research for several years on the possibility of reconciling financial and environmental performance. The launch of a new series of low carbon indices by ERI Scientific Beta, the smart beta index provider set up by EDHEC Risk Institute in 2012, marks the practical realisation of these research efforts and represents an important moment for responsible finance, because the results of the research undertaken will provide institutional investors with smart beta indices that can reduce the carbon footprint of their equity investments by more than 80%, while at the same time outperforming traditional market indices and being able to create more than 50% additional value in the medium term.
EDHEC Risk Institute's approach can be distinguished from numerous approaches that, over the long term, hope to outperform the stock markets through the higher returns of shares in firms that have a better carbon footprint, because these firms are supposedly less affected by the increasing cost of fossil fuels and the tons of carbon emitted, but that, in the short and medium term, aim to produce performance that is fairly similar to that of traditional stock market indices.
For the green indices produced by ERI Scientific Beta, the idea is offer access to short and medium-term outperformance by using consensual results from financial research. The "green" premium, which has not yet been scientifically and empirically demonstrated, will be able to play out as a long-term complement to performance, but Scientific Beta's green and smart beta indices already produce performance by relying on the consensual state-of-the-art in academia in the area of factor investing and portfolio diversification.
The exclusion from the index of the largest carbon emitters, the worst firms in terms of carbon intensity in each sector of activity, and the largest holders of fossil assets, guarantees that these indices have a strong positive impact on the environment by weighing on the value of the stocks of the excluded firms, thereby obliging them to change their strategy or their production process in order to be removed from the exclusion list.
"We are delighted to share our expertise with ERI Scientific Beta to produce low-carbon versions of their highly respected multi-smart factor indices. The combination of low-carbon emissions and state-of-the-art smart factor indices is a compelling opportunity for investors globally," says Maximilian Horster, Director Financial Industry at South Pole Group.
A special workshop at the EDHEC-Risk Days conference at The Brewery in London on March 15 will address the theme of "Smart Beta & Low Carbon" by looking at the limitations of green stock picking, examining how to perform financially whilst reducing the carbon footprint and presenting the Scientific Beta Low Carbon Multi-Beta Multi-Strategy Indices.
To receive a press pass to this conference, please visit the registration website or contact Joanne Finlay: joanne.finlay@edhec-risk.com.
ERI Scientific Beta, 1 George Street, #07-02, Singapore 049145. For further information, please contact: Séverine Cibelly, Tel.: +33 493 187 863, E-mail: severine.cibelly@scientificbeta.com, Web: www.scientificbeta.com.
