Investment research firm Morningstar announced today the launch of the Morningstar Low Carbon Transition Leaders (LCTL) Indexes, a new series of indices aimed at providing investors with exposure to companies leading their sectors in climate transition readiness and action.

Morningstar said that the launch of the new indices in collaboration with its index unit Morningstar Indexes, and its ESG ratings, research, and data provider, Morningstar Sustainalytics.

Morningstar acquired Sustainalytics in 2020, and said at the time that it planned to integrate ESG data and insights across the firm’s research and solutions. The new indexes utilize Sustainalytics Low Carbon Transition Ratings, a tool launched by the company last year assessing a company’s alignment with a net zero pathway, based on an evaluation of its strategy and actions as well as scenario analysis. The ratings are expressed as an Implied Temperature Rise, indicating a company’s exposure to low carbon transition risks and opportunities, based on an analysis of its business model, emissions and management performance, and utilizing scenario analysis.

Anya Solovieva, Director, Global Commercial Strategy, Climate Solutions at Morningstar Sustainalytics, said:

“Incorporating our Low Carbon Transition Ratings within an index methodology enables our clients to apply a forward-looking climate transition risk lens to their global portfolios and invest in leaders across all sectors.”

According to Morningstar, constituent selection for the new index series includes the identification of “climate transition leaders” by grouping companies from the parent index by sector, and then ranking     them according to their composite Low Carbon Transition Leaders Score, with the index capturing the top scoring 50% of each sector by market cap. The company added that the indices also emphasize companies that report emissions, reduce carbon intensity, and with business activities that the top scoring 50% of each sector by market cap.

The new series is launching with 9 indices, including a global index, three developed market and one emerging markets indexes, two regional indexes, and two single country indexes, including a Japan and a U.S. index.

Rob Edwards, Global Director of ESG Product Management at Morningstar Indexes, said:

“Investors are focusing on the growing market impact of climate change, whether for managing investment risk or pursuing investment opportunity. Our clients want a simple and transparent way to identify and invest in the companies best positioned to thrive and survive in this scenario. Our Low Carbon Leaders are companies with management that understand how to evolve their business in this context to protect and grow their market share and innovation.”