S&P Dow Jones Indices, the world’s leading index provider, has established a first-of-its-type commodities index integrating environmental indicators. The S&P GSCI Climate Aware is a broad-based commodity index designed to provide market participants with ongoing exposure to the global commodities sector, similar to the S&P GSCI.
The S&P GSCI Climate Aware index, on the other hand, is unique in that it reallocates the weights of its constituents away from higher-intensity fossil fuels. Instead, it shifts them to commodities critical to the global energy transition while maintaining an allocation to food commodities that sustain life.
The S&P GSCI Climate Aware index uses index optimization, an approach in which a mathematical model is employed to pick the ideal combination of components based on specific stated criteria, with the S&P GSCI as its starting index universe. The S&P GSCI Climate Aware Index uses this strategy to attain a similar level of diverse and broad exposure to the commodities market while maintaining index replicability and liquidity.
The S&P GSCI Climate Aware index is based on the S&P Global Commodity Environmental dataset, which S&P Global Sustainable1 created.
The dataset includes physical and financial impact data on greenhouse gas emissions, water consumption, and land usage for all S&P GSCI constituents.
The S&P GSCI Climate Aware index, in particular, aims to achieve a 25% reduction in environmental impact per dollar invested compared to the S&P GSCI, as well as a 5% year-on-year decarbonization target, while maintaining total food production and ensuring land and water environmental impacts are no higher than the S&P GSCI.
S&P DJI and J.P. Morgan cooperated to publish a research report on the impact of environmental factors on commodity benchmarks.
With the introduction of this climate-aware commodity index, S&P DJI expands its portfolio of the broad market, thematic, and targeted global sustainability and environmental, social, and governance (ESG) indices, such as the S&P 500 ESG Index, as well as more specific environmental and climate-focused benchmarks, such as the S&P Paris-Aligned and Climate Transition (PACT) indices.
“S&P Global Sustainable1 has developed the S&P Global Commodity Environmental dataset covering a range of agricultural, energy, precious metal, and industrial metal commodities to support the need for increased transparency on environmental factors across commodity value chains. The dataset enables investors and corporates to understand and quantify the environmental risks and opportunities of specific commodities, as well as across portfolios, indices, and benchmarks,” said Steve Bullock, Managing Director, Global Head of Research and Methodology, S&P Global Sustainable1.