Trucost, an independent environmental research organisation, plans to launch a green tracker fund in the new year.
The fund will hold all of the constituents of the FTSE 350 index, but with companies reweighted according to how efficient they are. Trucost estimates the fund will produce carbon savings of more than 20%, compared with the index.
Simon Thomas, chief executive of Trucost, says: “It is a sector-neutral, carbon-optimised version of the FTSE 350, designed to track the performance of the index.
“Independent backtesting from 1998 shows that the tracking error was just 0.7%. This fund will be of interest to people who want a tracker but are worried about carbon as an emerging issue.”
The portfolio will be launched as a standalone product, or as a new share class for an existing tracker fund. Just 25% of FTSE 350 firms disclose accurate data on carbon emissions and Trucost uses production data to calculate pollution output.
Thomas (pictured) is quick to identify himself as “an economist, not a tree-hugger” and says the belief that ethical funds and performance are mutually exclusive is rapidly disappearing.
He says: “Some of the socially responsible investment funds have no exposure to tobacco or casinos, making their returns quite volatile. Our fund, which does not use negative screening, shows that you can take a strong stance on carbon without the volatility.”