Late June, the Fossil Free Indexes US was launched by investing research company Fossil Free Indexes. The move come at a time when investors are not only looking to invest in clean technologies, but want to be investing in companies which are themselves not reliant upon fossil fuels.
“FFIUS is the first of its kind in the US,” said Stuart Braman, founder/CEO of Fossil Free Indexes (FFI). “We’re primed to give investors a unique opportunity to invest in the broad market while avoiding the increasing risk of long-term investment in fossil fuels.”
The Index is based upon the Standard & Poor’s 500 (S&P 500) — itself based on the market capitalisations of 500 top companies in leading industries of the US economy — but excludes the largest oil, gas, and coal companies as identified by FFI’s proprietary The Carbon Underground 200.
Similarities between the FFIUS and S&P500 Image Credit: Fossil Free Indexes
“The Fossil Free Indexes US (FFIUS) (and its companion total return index, the FFIUST) was created to provide investors of all stripes a way to pursue a low-carbon approach to portfolio management,” wrote Barry Schachter, an advisor with FFI in a post comparing the similarities between the FFIUS and the S&P 500, who both provide indistinguishable returns and risks.
Such an index as the FFIUS however provides information beyond simple risk and return valuations. A trend towards fossil fuel divestment has been sweeping through the investment community over the past few years, spawned by a need to move away from fossil fuel energy companies unable or unwilling to in turn divest their own interests.
“Having the proven power of a broad index coupled with the removal of the risk associated with fossil reserves-based companies is a great investment strategy going forward,” said Seattle-based venture capitalist Mike Slade of Second Avenue Partners. “I plan to invest in the FFIUS index as soon as the investable product is available.”
“Aside from the ethical case, there is also a strong financial case for divestment,” wrote Tom Revell of Blue&Green Tomorrow. “If policies are introduced to ensure that the majority of fossil fuel reserves that cannot be burnt remain buried, the assets of fossil fuel firms would be severely devalued – becoming ‘stranded assets’ – according to the UK-based Carbon Tracker Initiative, a pioneer in the field.”
Such blatant moves away from investing in fossil fuel energy companies are a positive step in fossil fuel divestment, and as Tom Revell notes, the move does not simply have to be an ethical stance against harming the environment — there are real benefits in divesting ourselves of fossil fuel energy companies and their combined weight.
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