Scientific Beta

Research results on low carbon investing will be presented on 2 December 2015 at the EDHEC Business School Paris campus, on the occasion of the COP21 global climate conference. ERI Scientific Beta aims to provide all asset owners with smart indices that can both reduce considerably the carbon footprint of their equity investments, and outperform traditional market indices while creating significant medium-term added value.

EDHEC Risk Institute has been conducting research for several years on the possibility of reconciling financial and environmental performance. Presentation of the results of this research, organised on the occasion of the international COP21 climate conference, which is taking place in Paris between November 30 and December 11, 2015, marks the practical realisation of these research efforts and represents an important moment for responsible finance, because the results of the research undertaken will allow institutional investors to be provided with smart beta indices that can reduce considerably the carbon footprint of their equity investments, while at the same time outperforming traditional market indices and being able to create significant additional value in the medium term.

These indices, which will be produced by ERI Scientific Beta, the smart beta index provider set up by EDHEC in 2012, can be considered the first green smart beta indices. EDHEC Risk Institute's approach can be distinguished from numerous approaches that, over the long term, hope to outperform the stock markets through the higher returns of shares in firms that have a better carbon footprint, because these firms would be less affected by the increasing cost of fossil fuels and the tons of carbon emitted, but that, in the short and medium term, aim to produce performance that is fairly similar to that of traditional stock market indices.

For the green indices produced by ERI ScientificBeta, the idea is offer access to short and medium-term outperformance by using consensual results from financial research. The "green" premium, which has not yet been scientifically and empirically demonstrated, will be able to play out as a long-term complement to performance, but Scientific Beta's green and smart beta indices already produce performance by relying on a consensual state of the art in academia in the area of factor investing and portfolio diversification.

The exclusion from the index of the largest carbon emitters, the worst firms in terms of carbon intensity in each sector of activity, and the largest holders of fossil assets, guarantees that these indices have a strong positive impact on the environment by weighing on the value of the stocks of the excluded firms, thereby obliging them to change their strategy or their production process in order to be omitted from the exclusion list.