ENVIRONMENTALTRACKINGINTRODUCTION

Does the investment community hold the key to tackling climate change?

The Environmental Tracking (ET) Index Series works by taking the companies found in a normal index and re-weighting them, either positively or negatively, according to their position in the Carbon Ranking.

Once these indexes are adopted by a sufficiently large pool of investors, the effect will be to alter the supply and demand for the companies’ shares, and ultimately their share price.

The nature of the re-weightings seeks to replicate the performance of the normal index, whilst at the same time creating dynamic incentives for the world’s largest companies to cut their emissions.

Each year the Environmental Investment Organisation (EIO) creates a Carbon Ranking of the world’s largest companies.

This ranks companies according to their absolute Greenhouse Gas (GHG) emissions intensity, as well as their levels of disclosure and verification.

Companies are rewarded for their environmental performance and disadvantaged by their lack of disclosure and verification.

Vast pools of money are invested in stock market indexes each year, such as the FTSE 100 or the S&P 500.

Traditionally, money is invested in each company according to its market size within the index.

This is a popular method because the investment is diversified across a wide range of companies and requires minimum input from an investment manager, keeping the fees low.

Position CompanyNormal Index

weighting

1 Fuel & Power Plc 14%

2 Supermarket Chain Inc 13%

3 Big Bank Plc 13%

4 Global Mining Plc 12%

5 Global Transport Inc 10%

6 The Book Company Plc 10%

7 Network Solutions Plc 8%

8 New Energy Co. Plc 8%

9 LED Lighting Plc 7%

10 Wind Solutions Plc 5%

NORMAL INDEX

CO₂ Rank

Company Disclosed? Y/N

Verified? Y/N

Emissions IntensityGHG/$M

1 New Energy Co. Plc Y Y 190

2 Wind Solutions Plc Y Y 240

3 Network Solutions Plc Y Y 540

4 The Book Company Plc Y N 480

5 LED Lighting Plc Y N 550

6 Supermarket Chain Inc Y N 780

7 Global Mining Plc Y N 990

8 Fuel & Power Plc Y N 1,900

9 Big Bank Plc N - 50

10 Global Transport Inc N - 22,000

ET CARBON RANKING

ET Index Position Company

Normal Index weighting

CO₂ Rank

ET re-weight %

ET index weighting

1 New Energy Co. Plc 8% 1 +50% 12.0%

2 The Book Company Plc 10% 4 +20% 12.0%

3 Supermarket Chain Inc 13% 6 -10% 11.7%

4 Network Solutions Plc 8% 3 +30% 10.4%

5 Fuel & Power Plc 14% 8 -30% 9.8%

6 Global Mining Plc 12% 7 -20% 9.6%

7 LED Lighting Plc 7% 5 +10% 7.7%

8 Wind Solutions Plc 5% 2 +40% 7.0%

9 Big Bank Plc 13% 9 -40% 5.4%

10 Global Transport Inc 10% 10 -50% 5.0%

ET INDEX

ENVIRONMENTAL TRACKINGEnvironmental Tracking is a tool capable of

harnessing the power of the financial system to address climate change.

So how does it work?

info@eio.org.uk | www.eio.org.uk | www.ETindex.com

info@eio.org.uk | www.eio.org.uk | www.ETindex.com

HOLD THE KEY?‣ The EIO has identified index funds as a reservoir of unused

financial firepower which, if skillfully harnessed to incentivise global emissions reduction, could offer the key to unlocking this problem that has so far proved impossible for world governments to overcome.‣Arguably one of the main reasons we are in this predicament is

the market’s failure to factor externalities, in this case the environmental costs, into prices.‣The potential to use the enormous power wielded by

financial markets as a force to tackle climate change has failed to be fully recognised, perhaps in part, for the lack of a suitable strategy.

RISK‣Climate change poses one of the greatest threats to human

civilisation to date. ‣ The financial benefits of mitigating climate change by far

outweigh the long term costs of inaction.‣Risk is not just related to the likelihood of a given outcome, but

also the scale of the consequences if that outcome is realised.‣Ultimately, the long term financial interests of investors are

aligned with the long term interests of the planet.

THE CONCEPTThe fundamental purpose of the Environmental Tracking Index Series is to offer an investment formula capable of attracting a large enough pool of investors to create market incentives to cut corporate GHG emissions globally, across all sectors, within a 10-15 year timeframe. What, therefore, would such an investment formula have to look like in order to have a large enough appeal to succeed?

‣ It would have to have the same risk/return profile as current mainstream indexes in order to attract a significant pool of investors, who would evidently want to see a safe return on their investment.‣ It would have to be global in its reach, transgressing international

borders via the ubiquitous power of the financial markets.‣ It would have to create an incentive structure capable of affecting

a company’s share price - something which no company would be able to ignore.‣ It would have to be based on a simple and transparent

methodology centered on verified emissions data that can be easily understood by the investing public.

The ET Index Series, alongside the ET Carbon Rankings which provide the data platform, are designed to meet these criteria, offering the investment community a viable tool for preventing dangerous climate change.

CLIMATE CHANGE RISK

DO FINANCIAL MARKETS HOLD THE KEY?

ENVIRONMENTAL TRACKING THE CONCEPT

that

ENVIRONMENTAL TRACKING"Climate change is a result of the greatest

market failure the world has seen."Lord Nicholas Stern, December 2007

ABOUT THE EIO

The Environmental Investment Organisation (EIO) Ltd is a not-for-profit body that was established in 1996 to work alongside the then newly formed London School

of Economics Environmental Initiatives Network (LSEEIN).

It now operates as an independent “out of the box” think tank with a remit to research, propose, and implement effective strategies for improving the ecological

and ethical “output” of the financial system. In recent years this mandate has been focused almost entirely on the need to tackle the climate crisis.

Should you wish to contact the EIO for more information or to discuss the opportunities available for tracking one or more of its indexes, then please

find our contact details listed below.

T: +44 208 801 0570

E: info@eio.org.uk

www.eio.org.uk

www.ETindex.com