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Korea index prods firms to reduce carbon footprint
S&P DJI gauge overweights or underweights companies based on their greenhouse gas emissions
26 Nov 2020 | The Asset

S &P Dow Jones Indices and the Korea Exchange (KRX) have launched a new index aimed at encouraging firms to improve their transparency and reduce their carbon footprint.

The S&P/KRX Carbon Efficient Capped Index is designed to measure the performance of companies in the S&P Korea Broad Market Index (BMI), but excludes foreign companies as classified by the exchange and companies that are high carbon emitters or with insufficient greenhouse gas (GHG) emission disclosures.

The index overweights or underweights companies that have lower or higher levels of GHG emissions per unit of revenue and applies a single constituent weight cap of 30%. The index is reconstituted annually and rebalanced quarterly.

S&P DJI says the index aims to reflect the South Korean government’s move to a low-carbon economy through its Green New Deal initiative, which seeks to achieve carbon neutrality for the country by 2050.

The index’s unique reweighting methodology helps promote behavioural change and recognizes companies for greater corporate transparency and optimized carbon-to-revenue footprints, S&P DJI notes. The index currently includes 483 constituents, representing 90% of the S&P Korea BMI’s total market capitalization.

“As the very first carbon-efficient index in Korea, the index will be a big boost in global efforts to achieve carbon neutrality while helping businesses to respond to climate change,” says Woo-kyeong Hwang, head of index business at KRX.

Reid Steadman, global head of ESG indices at S&P DJI, notes: “Our carbon- efficient and ESG indices are designed to reflect the transition to more sustainable and low-carbon economies globally. The index’s unique characteristics help encourage more transparency in ESG data and carbon footprints among Korean companies.”