New Index Tests ‘Climate Leadership’ as a Market Signal

A new index of public equities is designed to reward “climate leaders” and punish “climate laggards” while perhaps delivering outperformance for investors as well.

Etho Capital‘s Climate Leadership Index (ECLI) is designed to meet the criteria of the fossil-fuel divestment movement by screening out oil, coal and natural gas companies. It also screens out companies with generally poor “ESG” ratings (for environmental, social and governance factors), as reported by CSR Hub.

“Our new index shows that investing in diversified climate efficiency has yielded higher returns for the past decade,” Ian Monroe, co-founder and president of Etho Capital, and a lecturer at Stanford University, said in a statement. “Climate leaders generally outperform climate laggards in most industries, and we think this trend will accelerate in a carbon-constrained future,”

To build ECLI, Etho Capital screened 5,000 public companies to identify carbon-efficient “climate leaders.” Using climate performance information from Trucost, Etho ranked companies by carbon emissions per dollar. Running historical data, ECLI would have slightly outperformed the S&P 500 Index over the past 10 years.

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