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2006. Thomas says Trucost does a lot of similar research for institutional investors: “We’ve worked with pension funds across Europe looking at how their carbon profile compares and contrasts when they are tracking different indices.” In December 2006, it won the mandate to provide an environmental footprint analysis of €17bn of global equity holdings of the French State Reserve Fund (FRR). Trucost has also started marketing an index against which investment funds can be benchmarked to be more carbon friendly. The index, again based on the FTSE 350 (ex investment trusts), takes an overweight position in companies with low carbon footprints and goes underweight in those that are inefficient compared to the sector average. It maintains the index sector weightings and holds all the same stocks. Trucost said back-testing of the index from 1998 to 2005 showed it had a 25% lighter carbon footprint with performance tracking error plus or minus against the index of 0.5%. The company sells the index data for a percentage of the fund’s management fee.
“We think it’s a valuable tool because we’re basically adding a call option on the price of carbon becoming more expensive,” says Thomas.
He says London-based hedge fund GLG is already using the data for its European long only alpha fund in order to knock out environmentally unfriendly companies: “So far they have taken out half of the companies from their portfolio and done a three-year back test on it for performance, and can still generate alpha.”
The Trucost chief says the company has memorandums of understanding with a number of investment banks that are looking to use the index as a base for related

products: “Some are looking at enhanced alpha strategies, others are looking at carbon optimised indexation.”
Thomas, a former banker who co-founded the Emerging Markets Investment Trust business at LCF Edmond de Rothschild, says he came out of a youthful early retirement to set up Trucost in 2000 after sensing the urgency of the climate change issue and a need for related, meaningful data.

“We think it’s a valuable tool because we’re basically adding a call option on the price of carbon becoming more expensive.”

His founding partner at Trucost, Andrew Jacobs, was a former stockbroker and executive director at Nomura International. “I had a comfortable life with money invested in self storage assets (Both Thomas and Jacobs are directors of Lok’nStore, the AIM listed self-storage company) but I became fascinated with the subject. The first thing we realised was that we had to change the perception of climate change to an economic not an ethical issue because it is possible to be objective about it. The Stern report on climate change later explicitly posited the issue of climate change in financial terms. Getting the data together was hugely important in this respect. We were out in the wilderness on this for a few years because it wasn’t an issue people were talking about when we started,” says Thomas. Jacobs and

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