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April 29, 2014
NRDC Teams with Investment Firms to Offer Fossil Fossil Fuel Free Equity Index
    by Robert Kropp

The Natural Resources Defense Council joins BlackRock and FTSE Group to launch a equity global index series that excludes companies engaged in exploration, ownership, or extraction of carbon-based fossil fuel reserves.

The global index provider FTSE Group announced today the launch of the FTSE Developed ex Fossil Fuels Index Series, a group of benchmark indexes that excludes companies engaged in exploration, ownership, or extraction of carbon-based fossil fuel reserves. BlackRock, the investment firm, has stated it will create an investment product that will track the new index series. The Natural Resources Defense Council (NRDC) has provided seed capital for the BlackRock product.

The launch of the index series comes at a time when a debate over divest vs. engage is occurring in the sustainable investment industry. Green Century Capital Management's Balanced Fund has been fossil fuel free for years, and the investment firm recently announced that its Equity Fund—which has excluded oil and gas companies—will now exclude natural gas companies as well.

“We no longer believe gas companies can be a viable investment for an environmentally responsible mutual fund,” the firm stated in February.

The FTSE Developed ex Fossil Fuels Index Series will be “the first to implement total exclusion of fossil fuel linked stocks so that these enterprises are removed entirely from the constituency,” NRDC stated in a press release. “The global benchmark includes over 2,000 securities across 25 countries.”

According to FTSE, a company that satisfies the following conditions is excluded from the Index Series: classified as in the ICB subsectors - Exploration & Production, Integrated Oil & Gas, Coal Mining and General Mining; and either have revenues arising from coal mining and crude petroleum and natural gas exploration and production; or proved and probable (2P) reserves in coal, oil or gas based on the company’s published Annual Report and Accounts.

“Until now, it could be hard to figure out if investments were free of fossil fuels: Large portfolios like retirement funds invest in multiple companies at once and might put money in oil, gas, or coal,” NRDC President Frances Beinecke wrote. “As a result, well-meaning investors might find themselves holding so-called 'passive' investments in the very companies they wanted to avoid.”

“Foundations, universities, pension groups, and other major organizations that have wanted to get out of fossil fuel investments have a responsible path to do so,” Beinecke continued, “one that will allow them to continue to make money for their clients, but not at the expense of our air, water, and climate.”

“Institutions across the world are rightfully reconsidering investments that directly threaten our climate and thus our economies,” said Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC). “The divestment index provides these institutions with yet another potentially powerful tool to align their investments with their missions. Its launch could not be more timely, in the lead up to the 2015 climate change agreement, that can and should delineate the path toward a more just and sustainable future.”

Many sustainable institutional investors prefer engagement to divestment, and choose corporate dialogue and the filing of shareowner resolutions over emptying their portfolios of fossil fuel companies. During this year's proxy season, six institutional investors have filed resolutions addressing stranded assets with 10 fossil fuel companies.

Stranded assets refer to the fossil fuel reserves that will have to stay in the ground if global temperature increases are to be limited to two degree Celsius. The concept also forms the basis for the divestment movement on college campuses, where students are pressuring their colleges and universities to divest their holdings in fossil fuel companies.


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