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Latin America best placed to meet global 2°C energy target: S&P

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Latin America’s stock market is potentially best placed to meet the COP-21 target of limiting the rise in global temperatures to no more than 2°C, according to S&P Dow Jones Indices (S&P DJI).

The S&P Latin America 40 index, which includes 40 leading blue-chip companies in the region, had the second highest carbon footprint, according to S&P DJI’s recently published index scorecard. However, it rated highly for its exposure to companies at the forefront of the transition to renewable energy.

The scorecard – which assessed carbon efficiency for the major S&P DJI benchmarks – was published  by S&P DJI and Trucost to provide a barometer for the carbon efficiency of indexes and the direction of travel for each economy’s move to renewable energy, the group said in a statement.

“The S&P Latin America 40 is potentially the best positioned index for the low carbon economy,” the company said. “It is already closely aligned with the International Energy Agency’s 2050 global target for energy generation, due to its low exposure to coal power generation and its large hydroelectric power generation share.”

The publication of the scorecard comes as more than 200 global institutional investors have called on the heads of state of major world economies to drive investment in low carbon assets and implement climate-related financial reporting frameworks. Overarching these demands was a call for the G7 and G20 leaders to stick with and swiftly implement their commitments to the Paris Agreement on climate change.

Richard Mattison, CEO of Trucost, said that many large institutional investors were now incorporating an assessment of carbon risk into their investment processes, with carbon increasingly being considered as an investment factor.

Last year, PGGM, the asset manager for the €172bn Dutch healthcare pension fund PFZW, said it would divest the scheme’s stakes in more than 200 mining, steel, and energy companies in a bid to halve its investment portfolio’s carbon footprint.

However, many investors have taken a more measured approach towards reducing their environmental impact, preferring to engage with companies rather than divest. A recent report by the Ethical Council for Sweden’s AP funds argued that engaging with companies over environmental and ethical matters was a more sustainable strategy than simply dumping the investments.

“The scorecard reflects the market sentiment for transparency and demonstrates the range of metrics that market participants now use to understand carbon risk and opportunities for green growth,” S&P DJI said.

The research was based on the S&P Global 1200, which captures approximately 70% of global equity market capitalisation and is formed of seven headline indices.

The index with the lowest carbon footprint was the S&P 500 Growth, while the emerging markets index was the most carbon intensive group.

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