FTSE Group launches all-share carbon index

LONDON (Reuters) - Index provider the FTSE Group launched two products on Wednesday that weight London-listed companies according to carbon risk, aiming to draw pension funds concerned at exposure to proliferating climate policies.

FTSE Group launched the indexes with ENDS Carbon and the Carbon Disclosure Project (CDP), which provide carbon emissions data for listed companies worldwide.

The new indexes are based on the FTSE All-Share index, which tracks a basket of 630 companies listed on the London Stock Exchange, and the FTSE 350 index.

Each new index has the same overall sector weighting as the standard counterparts, but within each sector judges stocks according to how environmental legislation impacts them.

"It deals with how to address climate change in your core equity holdings," said David Harris, director of responsible investment at the FTSE Group.

"Within each sector there will be winners and losers."

For example, the European Union's emissions trading scheme will force airlines to buy emissions permits from 2012 and utilities in western Europe to pay for all their carbon emissions from 2013.

"We've developed a model that forecasts the likely costs of carbon permits for British Airways and Easyjet," said Craig Mackenzie, technical director at ENDS Carbon, finding that costs would be higher per unit of revenue for Easyjet, which is therefore made underweight for the sector.

BA will grow less quickly, meaning it will have to buy fewer permits, and has higher fares, making it easier to pass through carbon costs, Mackenzie said.

The developers of the indices hoped that investors would adopt them in larger numbers compared with more niche climate indices tracking specialist environmental technology companies. The FTSE All Share index has thousands of clients.

"It has much more scalability than a cleantech type fund. Potentially if this index really took off you might see 10 billion pounds ($14.91 billion) managed against it within two or three years," said Mackenzie.

Some 700 asset managers and advisers have signed up to the U.N.'s principles for responsible investment, which commit fund managers to address environmental issues including climate change in investment decisions.

Wednesday's new indexes follow carbon risk rather than general environmental performance. As a result, London-based BP

-- at the center of the Gulf oil spill disaster -- was given a neutral weighting, reflecting its big reserves of gas, a less carbon-emitting fuel than oil.