A stock market index represents the performance of a group of stocks or securities in a financial market. Stock indices provide insights into the overall direction and health of financial markets. A growing number of indices include the risk of holding assets that are based on fossil fuels or that have high emissions of carbon dioxide and other greenhouse gases. These “carbon indices” are intended to inform investors about the potential exposure to government regulation or shifts in consumer attitudes that increase the cost of carbon, all of which would change the priorities of investors.
The S&P 500 Carbon Efficient Index (CEI) is designed to measure the performance of companies in the S&P 500 while overweighting or underweighting those companies with lower or higher carbon emissions per unit of revenue. The index aims to integrate low carbon considerations into broad market indices, reweighing companies within industries based on their carbon-to-revenue footprints, to lower overall exposure to carbon emissions while maintaining industry allocations.1
The companies in the CEI come from sectors that comprise other common stock market indices. However, the CEI omits companies that are classified as large emitters of carbon that do not disclose their omissions. The index also overweights or underweights those companies with lower or higher carbon emissions per unit of revenue.
How has the CEI performed in the recent past compared to broad market trends? The five-year annualized return for the index from January 2019 to January 2024 is about 13%. This performance is as good or better than several other major indices over the same period.
1 S&P Global, “S&P 500 Carbon Efficient Index,” accessed January 15, 2024, Link