This new stock index aims to track green efforts in emerging markets
Dec 7th 2009 12:30PM
Updated Dec 14th 2009 3:58PM
For instance, WalMart isn't going green only to look good among yuppie customers but also because it saves the company that Sam built boatloads of cash over time by reducing electricity, fuel and packaging costs.
Green companies in the developing world, however, have thus far lacked a real yardstick to track their stock performance versus the rest of the market. Now, on the eve of the widely anticipated Copenhagen Summit, financial services company Standard & Poor's has rolled out a new "carbon-efficient index" for emerging-market companies. S&P uses data from environmental impact tracking company Trucost, and it partnered the International Finance Corp. (IFC), a funding arm of the World Bank Group, to build the list. It's a compendium of leading companies in emerging markets that are on the forefront of green tech and carbon-footprint reduction.
IFC and S&P say tracking this information will redirect upwards of $1 billion in capital into emerging-market green companies. The theory holds that the new index will make it easier for green-oriented mutual funds and investment advisers to allocate capital to these emerging market stocks. This, in turn, will create additional pressure for emerging-market companies to go green.
The Better the Data, the Better the Index
Over time, the new green index will finally give investors better insights about whether green really does pay off. Says David Blitzer, chairman of S&P's Index Committee: "With the growing understanding of the role of carbon emissions in climate change, the S&P/IFC Carbon Efficient Index will be a powerful tool for investors seeking to reduce their carbon exposure in a broad portfolio covering emerging markets."
That's a great idea, but given the recent spate of controversy and fraud around carbon-tracking and -measurement firms, one has to wonder whether the data behind the index is rock solid. Most of those measurements rely on data supplied by the companies themselves or on external analyses that involve a significant amount of guesswork and extrapolation.
Part of the problem, too, is that measuring carbon emissions is more art than science at this point. While it may be easy to measure carbon emissions from a single smokestack, accurately pegging an entire company's carbon footprint is particularly difficult even with an extremely detailed internal audit -- and those are too often not forthcoming.
A Good First Move
Still, it's wonderful that S&P, Trucost and the IFC are making this data so readily available. Trucost also offers broader coverage of over 4,500 companies, but that requires paid subscriber access, a barrier to entry for smaller funds and individual investors. And even if the earliest iterations of these types of indexes aren't perfect, any sort of impetus toward energy and carbon efficiency is a good thing.
That's particularly true for companies in the developing world that could greatly benefit from extolling their green cred. It could even help them sell carbon credits against their green initiatives on fast-growing emission trading markets.
Alex Salkever is Senior Writer at AOL Daily Finance covering technology and greentech. Follow him on twitter @alexsalkever, read his articles, or email him at firstname.lastname@example.org.