Morningstar Indexes, in collaboration with Morningstar Sustainalytics, has launched a series of indexes to deliver broad exposure to companies leading their sector peers in their readiness for – and action towards – climate transition.
The Morningstar Low Carbon Transition Leaders (LCTL) indexes are a range of nine global, regional and single country benchmarks underpinned by forward-looking metrics, including the Sustainalytics Low Carbon Transition Ratings, that identify the companies taking the most action towards aligning with net zero.
Rob Edwards, global director of ESG product management at Morningstar Indexes, said: “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. 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.”
According to Morningstar, the indexes identify climate transition leaders by grouping companies from the parent index by sector, ranking them according to their composite LCTL score and capturing the top scoring 50% of each sector by market cap.
The LCTL score considers a company’s current carbon intensity as well as its management score from the Sustainalytics Low Carbon Transition Ratings. The indexes also emphasise companies that report carbon emissions and are reducing their carbon intensity, as well as those whose business activities contribute positively to the environment.
Examples of companies included in the indexes are Taiwan Semiconductor Manufacturing Company, the world’s largest semiconductor chip manufacturer, and Orsted, the largest energy company in Denmark.
Anya Solovieva, director of global commercial strategy, climate solutions, at Morningstar Sustainalytics (pictured), added: “Our clients are grappling with an increasingly complex investment landscape and are trying to get a better understanding of 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.”
