Doing the right. things!
right. based on science, climate change startup from the ESA BIC Hessen & Baden-Württemberg, used its proprietary X-Degree Compatibility (XDC) Model to analyse the climate impact until 2050 of all stocks included in the ‘Solactive Europe 600’ index since 2013. Now the index provider Solactive released the ‘Solactive right. 2 Degree-Aligned Europe Index’ based on right. based on Science’s XDC Economic Climate Impact Model. It is a benchmark index based on a broad portfolio of sector-leading European companies aligned with a 2°C global warming scenario through 2050. right.’s software enables clients to measure the contribution of a company or a portfolio to climate change. Results are expressed as a tangible °C value. Originally, they planned to use Earth Observation data for their calculations.
Hannah Helmke, founder & CEO, Sebastian Müller, Founder & In-house Lawyer
The analysis determined how much global warming could be expected if the entire world were to operate as emissions-intensively as the companies in the index until 2050 (under baseline assumptions*). The result (Baseline XDC) for each company was then benchmarked against the sector-specific ‘temperature threshold’ (Target XDC), which the company must align with, in order to be compatible with max. 2°C global warming.**
All companies that remain below their sector-specific threshold were included in the new ‚Solactive right. 2 degree-aligned Europe Index‘. At launch, this applied to 260 companies (43%) of Europe’s largest public companies. These include AXA, Deutsche Post, Hugo Boss, Telefónica as well as automotive companies Daimler, Ferrari and Volvo. Initially not included in the index are Airbus, Deutsche Telekom, Lufthansa, Nestlé, SAP, and Volkswagen. All of these companies currently exceed their sector-specific Target XDC and are therefore not Paris-aligned.
The sector ‚computer programming & consultancy’ performed particularly well: All analysed companies in this sector are currently aligned with a 2°C world. Whereas only one of 30 companies from the sector ‘manufacture of pharmaceuticals’ could be included in the index at launch (Novo Nordisk A/S).
The design of the new benchmark addresses three critical areas for clients looking for temperature-aligned portfolios. First, it uses a single metric – the XDC – and thus keeps the index design transparent and easy to understand. Additionally, in comparison to many existing approaches to temperature-alignment, the XDC is a forward-looking metric. Finally, while the ‘Solactive right. 2 Degree-Aligned Europe Index’ is weighted by free-float market capitalization, the temperature alignment is independent of the weighting scheme, leaving clients with greater flexibility in designing similar strategies.
In February 2020, Solactive placed a strategic investment into the Frankfurt-based scientific climate data start-up right.
Hannah Helmke, CEO of right. based on science, comments: “Our aim in creating the XDC Model was to provide a transparent, tangible climate impact metric that can be used by financial actors, the real economy, and other market participants alike. Solactive has recognized this potential, and we are very pleased that the joint creation of temperature aligned indices, such as this one, can contribute to the redirection of capital flows towards more climate-friendly business practices.“
Steffen Scheuble, CEO of Solactive, comments: “Societal changes go hand in hand with a change in responsibilities. As an index provider, it is our onus to facilitate investing in a green future for the contemporary investor. We found that entering a strategic partnership with right. to develop a tangible and accessible 2° degree-aligned index was the right choice, and we are looking forward to disrupting the indexing business and the way people invest in a greener future with right. even more going forward.”
right. based on science entered the ESA BIC Hessen & Baden-Württemberg in 2018. They wanted to use Earth Observation data for their calculations.
* Baseline assumptions are a continuation of the historical rate of decoupling of GVA and emissions following the Shared Socioeconomic Pathway 2-Scenario (SSP2).
** The Target XDC is calculated by applying the sector-specific allocated ‘carbon budgets’ determined by the International Energy Agency (IEA) for a 2°C global warming scenario. Less emissions-heavy sectors (e.g. telecoms) are allocated a smaller remaining budget than heavier sectors, e.g. energy. For example: the 2°C-compatible Target XDC for electricity generation is 6.5°C while for telecommunications it is 1.4°C.