After extensive market outreach, S&P Dow Jones Indices launched the S&P GSCI Light Energy Climate Aware to satisfy a need for a benchmark tied to sustainability and the energy transition, but with a lighter energy weighting than the new S&P GSCI Climate Aware. As can be seen in Exhibit 1, the S&P GSCI Light Energy Climate Aware applies the S&P Global Sustainable1 Commodity Environmental Dataset to the popular S&P GSCI Light Energy in order to provide a commodities benchmark with a 25% lower environmental impact per dollar invested, which provides market participants a commodities overlay within a sustainable strategy. The index has lower weights to fossil fuel commodities while boosting the weights of less environmentally intense commodities tied to the energy transition.
Compared with petroleum, the production of commodities such as copper, nickel, zinc and gold is much less disruptive to the environment, and these commodities will also be key to the world’s new electric economy during the energy transition. Earlier this year, we published a blog highlighting the importance of copper in particular as possibly the most important natural resource needed to help us move away from our current carbon intensive energy systems.
Copper is one of the least carbon intensive commodities to produce among the industrial metals, but it is also one of the major natural resources comprising electric vehicles and renewable energy applications such as wind turbines. Exhibit 2 shows the current environmental footprint of the production of each of the 24 commodities within the S&P GSCI. Within our global food supply, cattle production is highly environmentally intensive and was one of the commodities within our new index that saw the biggest percentage drops in weight compared to the benchmark index.
Sustainability is a key theme within the investing community, but prior to S&P DJI’s launch of our climate aware commodity indices, there were only index offerings that represented sustainable considerations within an equity or fixed income portion of a strategy. Now with the S&P GSCI Light Energy Climate Aware, market participants can apply those considerations to their commodity strategies, taking advantage of the inflation hedging and diversification characteristics historically provided by this asset class.
S&P DJI continues to be the leader when it comes to bringing innovative, sustainability-focused index offerings to the market. The S&P GSCI Light Energy Climate Aware is another example of how we look to drive transparency and incorporate sustainability criteria into our benchmark indices.
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Direxion launches ‘Breakfast Commodities’ ETF
