We're unlikely to see a film any time soon starring a reformed Gordon Gekko proclaiming "green is good", but until that happy day the Environmental Tracking Index Series is an interesting instrument for Fools who want to save the planet and make money.
Image via WikipediaGreen is good (as Gordon Gekko would never say).
Launched in May, it's a kind of exchange-traded fund and its unapologetically noble purpose is to punish polluting companies while rewarding green ones. More later, but it does so by ranking companies according to their greenhouse gas emissions, whether they like it or not.
Capital markets to rescue the climateThe aim, explains Sam Gill, operational director of its sponsor, London-based Environmental Investment Organisation, is "to harness the power of the capital markets to address the most pressing of environmental issues -- climate change."
The Environmental Tracking Index has been a long time in the making -- about 15 years in fact -- and its gestation says a lot about how opaque the pollution issue really is. A lot of companies pay lip service to it. As the EIO tells it, the big difficulty was how to come up with sufficiently reliable data to make the rankings accurate.
Nowhere to hideWhat we've ended up with is a ranking of Europe's biggest companies on greenhouse gas emissions (GHG) as well as on their levels of disclosure and transparency.
It's not an index of green or otherwise responsible companies but an index of all the big companies, polluters or not, so there's nowhere to hide.
There's big banks, big oil, big pharma, big telcos, big manufacturers, big food and beverage, the whole lot. The expectation is that, as this index picks up steam, it won't be long before delinquent companies and especially those that fudge their data will be punished by the markets.
Greenest winsThe index works by encouraging the flow of capital going to the lowest polluters while limiting capital flows to the highest polluters. This is because the rankings make it possible for investors to see which is which.
The weightings are based on the ET (for environmental tracker) UK 100 and ET Europe 300 rankings, which appeared for the first time in April.
The greenest companies win because they are given the highest weightings and should end up with biggest chunk of the investment, just like any other index investment. Their rankings are based on emissions as a percentage of size. "It's a solution staring us in the face and just waiting to be used," says EIO.
More indexes in the pipelineThis is only a start. On the way are more indexes -- the ET North America 300, ET Asia-Pacific 300, ET Bric 100 and eventually ET Global 800 ranking the biggest 800 companies in the world, and finally the ET Global 1000 which combines the four regional indexes.
The GHG data isn't 100% reliable, as EIO readily admits, but it's probably the best out there. This is because many companies aren't yet prepared to own up to how much environmental damage they do.
However, there's nowhere to hide because if a company is less than transparent, it basically goes to the bottom of the class for its sector, which is surely an incentive to raise its green game. This kind of ranking by default is described as "inferred".
Sanctions punish pollutersIs this merely Utopian investment, like early wave power projects? Not when we look at the sanctions and penalties that American and European authorities are beginning to use to knock polluting companies into shape. There's an official, measurable and concerted push against high-emission companies that will cost the offenders dearly.
Take just the EU emissions standards for vehicles. After years of pussy-footing, the European Commission's got tough.
Carbon limits have been set at 130 grams a fixed kilometre and fines will be applied from next year at a rate of so many euros for every extra gram over the ceiling.
By 2019, a manufacturer selling a million cars a year producing one gram too many will face a fine of €95m a year. Sanctions like these make headlines and annoy investors.
In the long run, they could prove more effective than any amount of threatening notices from government departments. It's no accident that we're already seeing companies of all kinds using their sustainability credentials in mass advertising.
An attraction of this index is that Fools don't have to do their own science, even if they could. Meantime, to find out who are the good guys in Europe, go to EIO and click on ET Carbon Rankings.
The top three British companies are Aviva (LSE: AV) ranked top, RSA Insurance (LSE: RSA) at 7 and Man Group (LSE: EMG) at 8, while the bottom three are United Utilities (LSE: UU) at 92, Royal Dutch Shell (LSE: RDSB) at 95 and Centrica (LSE: CNA) at 98.