ANNOUNCEMENT: Expert Investor is now PA Europe. Read more.

Solactive debuts forward-looking 2-degree index

Constituents are weighted independently by free-float market capitalisation

German index provider Solactive has released a 2-degree index, which calculates the contribution of companies to climate change under different scenarios up to 2050.

The Solactive right. 2 degree-aligned Europe Index applies the X-Degree Compatibility (XDC) Model, which calculates the amount of emissions a company’s value creation is associated with, Expert Investor was told in February.

“The XDC is a forward-looking indicator, taking relevant scenarios such as corporate climate targets into account,” said a Solactive spokesperson, adding that the EU’s Paris-Aligned Benchmark (PAB) is based on backward-looking emission intensity and does not give room for considering possible changes.

A PAB-based index “focuses more on the change of emissions over the whole portfolio over time, while an XDC-based index focuses on a company’s level of emissions compared to a predefined target until 2050”, the spokesperson added.

As the index is weighted by free-float market capitalisation, the temperature alignment does not impose a certain weighting scheme.

Additionally, Solactive said that the index has a real-economy focus as it uses gross value added as an economic indicator for the emissions activity of a company.

The PAB, however, applies enterprise value as the denominator for emission intensities, which means that these can be heavily distorted by aspects that do not change real emissions, the spokesperson explained.

Selection of holdings

The index has been developed in partnership with Frankfurt-based start-up Right Based on Science, a climate metrics and software provider.

Companies are selected from a broad range of sectors aligned with a 2°C scenario under baseline assumptions through 2050 out of the Solactive Europe 600 Index, which tracks the price movements of the 600 largest companies in the European market.

When creating the index, Solactive found that more than 57% of those companies were not suitable as they lacked 2°C-aligned business practices.

Steffen Scheuble, chief executive of Solactive, said that “we are looking forward to disrupting the index business and the way people invest in a greener future with Right [Based on Science] even more going forward”.

Hannah Helmke, co-founder and chief executive of Right Based on Science, commented: “Our aim in creating the XDC Model was to provide a transparent, tangible climate impact metric that can be used by financial actors, the real economy and other market participants alike.”

In February, Solactive bought a minority stake in Right Based On Science to strengthen its strategic partnership.

MORE ARTICLES ON

  • Can M&A and buybacks breathe life into UK market?

    Can M&A and buybacks breathe life into UK market?

    Both buybacks and M&A should help realise value in UK shares, boosting prices and giving investors another reason to consider the UK stockmarket Not only does M&A activity appear to be picking up, with a high-profile bid for UK electronics retailer Currys, but the scale of company buybacks continues to accelerate. If it goes well,…

  • Capital Group launches multi-thematic Article 8 funds

    Capital Group launches multi-thematic Article 8 funds

    Capital Group has launched a set of multi-thematic sustainable funds that are available for investors in Europe, writes Christian Mayes. The Capital Group Sustainable Global Opportunities fund (LUX) will invest in global equities, while the Capital Group Sustainable Global Corporate Bond fund (LUX) will target fixed income exposure. The launch also includes a multi-asset offering…

  • Bond funds pull in €29.7bn in January – LSEG

    Bond funds pull in €29.7bn in January – LSEG

    Bond products were the best-selling asset class in January, according to LSEG Lipper’s European Fund Flow report, writes Christian Mayes. The asset class pulled in a net €29.7bn in the month, while Money Market USD grouping was the best-selling Lipper Classification after receiving €11.2bn inflows. Providers of mutual funds pulled in €22.5bn, while passives saw net…

  • Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    Quarter of Article 8 funds at risk of greenwashing – MainStreet Partners

    A quarter of all Article 8 funds could be accused of greenwashing based on their sustainability framework and practices, according to MainStreet Partners, writes Christian Mayes The 24% of funds classified as a greenwashing risk by the 2024 ESG Barometer report marks a four percentage point increase from the 20% flagged at the end of…

  • EU green rules could stymie decarbonisation projects – ExxonMobil

    EU green rules could stymie decarbonisation projects – ExxonMobil

    The European Union’s climate regulations may lead to it halting its investments in Europe, ExxonMobil has warned. Speaking to the Financial Times, Karen McKee, president of the product solutions division, said the oil and gas giant had struggled to begin decarbonisation projects in Europe due to the regulatory burden. The result, she added, was that…

  • ICE flags need for Europe to double green investment

    ICE flags need for Europe to double green investment

    Investments to modernise energy and transport must double by the end of the decade to reach 2030 climate targets, the EU has been warned. According to the Institute for Climate Economics (ICE), which has released the European Climate Investment Deficit report, the bloc lacks what it calls a “consistent tool” to ensure monitoring of the…