Goldman Sachs licences new CDP climate change, water and deforestation index

“Unique” index launch amid a flurry of ESG data announcements

Investor-backed environmental data body CDP has launched the first global index which selects companies for their performance on climate change, water security and deforestation.

Goldman Sachs has exclusive licensing for the index, which is designed for use by institutional and retail investors to underlie structured products with customised risk-return objectives.

It comes on a big day for ESG data developments, with MSCI also unveiling ratings for 32,000 equity and fixed income funds and exchange-traded funds (ETFs) and S&P launching Trucost environmental data through its Xpressfeed data feed platform. This week also saw alternatives specialist Man Group launch an in-house ESG dashboard that combines data from Sustainalytics, MSCI and Trucost.

“At CDP, we need to do more and more this kind of product.”

The new CDP offering, the Euronext CDP Environment World EW, uses CDP data to select the 40 companies ranking highest on the three environmental indicators from a universe of the 400 largest North American and European stocks on the Euronext 500 index.

Created by European stock exchange Euronext, its constituents include L’Oreal, Lloyds Banking Group, Danone, French oil and gas firm Total and aerospace and defence corporation Boeing.

It launches alongside the Euronext CDP Environment Eurozone EW, with both indexes based on data from CDP’s database of climate disclosures from 7,000 companies.

Laurent Babikian, CDP’s Director of Investor Engagement, Europe, said: “There’s a bunch of low carbon indexes in the world, but this index is unique. We know that climate change, water security and forestry are all interconnected, so it makes sense for an index to integrate all three.”

CDP’s scoring system ranks companies between A and F on their performance on material environmental issues, and for the indexes the alphabetical score is converted to a numerical ranking.A company scoring ‘F’, or ‘0’ (zero), would be one that failed to respond to CDP requests for disclosure. Meanwhile, a firm rated ‘A’, or ‘8’, would be deemed as becoming excellent at managing environmental risks and impacts and setting appropriate governance, targets and strategies.

Babikian said: “We all know the market’s not doing enough to meet the Paris agreement. We need to start focusing on the ‘E’ [of ESG], so it’s good news that Goldman Sachs wanted to have an index based on the ‘E’. At CDP, we need to do more and more this kind of product.”

Babikian said he hoped to work with financial institutions on developing products focused on just water or forestry: “Everybody is focusing on climate change now, but you don’t have so much innovation or product development in the water space or in the deforestation space. I believe there’s a market opportunity for such funds to be created.”

CDP provides data to investor signatories via an online portal, as well as selling it to data service providers like Sustainalytics, Bloomberg and MSCI.

The indices are a follow-up to the introduction of the Euronext CDP Environment France in September 2018 – also exclusively licensed to Goldman Sachs – which targeted the French market and quickly became dubbed the “green CAC40” after launch.

CDP has been involved in the creation of indexes before. In December 2018, the non-profit collaborated with Amundi subsidiary CPR AM to launch CPR Invest – Climate Action, a global equity fund with a core strategy based on companies’ performance on climate action.

It has previously worked with Euronext on its low carbon index, Euronext Low Carbon 100 and with index provider FTSE on its FTSE CDP Carbon Action series.

In 2009, financial data firm Markit launched a series of indices based on the CDP’s Carbon Disclosure Leadership Index (CDLI), which are no longer available.