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March 15, 2007
S&P Tracks Sustainability With a New Global Index
    by Anne Moore Odell

S&P jumps into the growing pool of sustainability indexes with the launch of its Global Thematic Index Series.


At the end of February, Standard and Poorís (S&P) announced the launch of its Global Thematic Index Series. The Series is composed of three indices: the S&P Global Clean Energy Index, the S&P Global Water Index and the S&P Global Infrastructure Index.

This new index series joins S&Pís well-known family of indices that include the S&P 500 and the S&P Global 1200. The S&P 500 has $1.26 trillion invested and $4.45 trillion benchmarked.

"We saw the emergence of new investment themes such as clean energy, water and infrastructure in the industry. These themes did not fit into traditional ways of creating indexes based on geography or industry. These themes are truly global, and may span across multiple industries," said S&P Index Strategist Srikant Dash.

"We had interest from product issuers to license such indexes from S&P. Based on this combination of where we saw the investment community was heading and where our clients wanted us to be, we decided to create this new series," Dash continued.

As the name suggests, the S&P Global Thematic Index Series consists of publicly listed companies from around the world. The series steers away from traditional geographical and industry classifications, looking to diversify company selection by following specific criteria for each index. Pure representation to each investment theme, high liquidity and tradability were named by Dash as the three most important criteria for inclusion on the new index series.

The S&P Global Clean Energy Index measures the performance of 30 companies that focus on clean energy production, clean energy technology, and energy equipment. The Clean Energy Index excludes companies for which their involvement with clean energy is a small part of their overall business. The US firm MEMC Electronic Materials, maker of silicon wafers for the semi-conductor industry, is the indexís largest constituent at 6.35%.

The S&P Global Water Index gauges 50 companies: 25 water utilities and infrastructure companies and 25 water equipment and material companies. French company Veolia Environment has the biggest share of this index at 9.57%.

The S&P Global Infrastructure Index measures the performance of 75 companies that run utilities, pipelines, airports, ports and highways. Twenty-two countries are counted in this index, with Spanish company Abertis Infraestructuras, S.A. being the largest constituent at 4.71%

S&P is not alone in tracking the markets of clean energy, water and infrastructure. Another global sustainability benchmark is the WilderHill Clean Energy Global Innovation Index, which was launched in 2006 by New Energy Finance in a partnership with Wildershares. The KLD Global Climate 100SM Index and Ardour Global Indices are other well-known indexes that follow clean energy. The Palisade Water Index, published by the American Stock Exchange, follows the global water industry. The Macquarie Global Infrastructure Index series, produced by FTSE, tracks companies in the infrastructure industry.

On a broader level, in 1999 the Dow Jones Sustainability Indexes became the first indexes to track the global performance of companies that focus on sustainability. These indexes look at companies across 58 sectors.

Alexander Barkawi, Managing Director, of the SAM Indexestold Socialfunds.com some of the reasons why he thinks there is a growth in renewable and sustainability indexes: "Investments into individual sustainability themes ó particularly renewable energy and water ó have indeed been on the rise over the last 12 months. The growing recognition among retail and institutional investors that the challenges of climate change and water scarcity also have significant impacts on their investments is obviously driving this
momentum."

"The global markets for solar, wind, biofuels, and fuel cells now exceed $50 billion annually," said Ron Pernick, Principal, Clean Edge Inc. and co-developer of the NASDAQ Clean Edge U.S. Index. "It's only natural that others are developing indexes to track this growing and dynamic sector. We're seeing compounded annual growth rates for a number of clean-energy sectors in the 30+ percent range," he explained. This index tracks pure-play clean energy companies.

"A confluence of forces, from volatile conventional energy prices to the growing mainstream acceptance of climate and carbon issues, are putting clean energy increasingly on the corporate, investment, and political map," Pernick added.

 

 
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