For those in doubt, the ET in ET Index Research does not refer to aliens of the Steven Spielberg variety, but instead derives from the title of a book published in 1997 by Michael Gill: Environmental Tracking: Can Investment Revolution Prevent Ecological Catastrophe? His son, Sam Gill, is CEO of ET Index Research and says that “we have re-branded it recently from ‘Environmental’ Tracking to ‘Engaged’ Tracking, the idea being that it is not just environmental but takes into account social or sustainability issues more generally.”
That’s the name sorted out. But what actually does ET Index Research, one of the more recent members of the Social Stock Exchange, do? I spoke to Sam Gill to discover more. “The point of ET Index Research is to provide a tool which is designed to be able to reduce systemic sustainability risks. What that tool is really all about is enabling investors to re-allocate capital away from certain companies to others. At the moment we are entirely focused on carbon, but the objective is to expand to other sustainability metrics. If we just talk about carbon, the idea is to be able to provide this tool for investors to follow the stock market and the largest listed companies and to re-allocate their investments away from the most carbon-intensive companies towards the most carbon-efficient. The purpose of doing that is to provide an incentive for those companies to change their behaviour. So, if enough investors start using ET Indices as opposed to FTSE indices then that would create a market mechanism for shifting demand for company shares in line with their carbon emissions.”
A very clear explication of the purpose of ET Index Research and one can see its beneficial social impact. It’s ultimately about trying to shift the flow of capital which, if that can be done on a sufficiently large scale, can start to influence share prices and also – if we limit ourselves to just carbon emissions – might help push the overall market towards becoming more efficient at carbon reduction. Sam is putting into practice the theory of Michael, his late father, in other words.
“The key to all this is that we are publicly ranking listed companies according to criteria relating to their carbon emissions. So all these companies have a very clear indication as to what they need to do to move to the top of the ranking. Because it’s a relative ranking everyone is effectively competing continually with each other, so there is a constant pressure,” says Sam Gill.
This kind of public naming-and-shaming of quoted companies could be, if ET Index Research gets wider attention and bigger backing, precisely the kind of powerful incentive for positive change encouraged by general market forces that’s lacking right now. I can foresee an extension beyond carbon emissions into other areas of social impact, such as labour relations and conditions, although calculating and drawing up the criteria for those might be tricky.
It’s therefore important, given the index is effectively awarding black marks or gold stars to individual companies, that the methodology underlying its composition is robust. Is Sam Gill confident that’s the case? “We take publicly available data sources and as we collect and analyse them we make an assessment as to whether it’s a sufficiently complete representation of the company’s footprint – does it cover 95% or more of its operations? If we have some cause for concern over the data we would consider it incomplete and we wouldn’t use that data. We then contact the companies, tell them what we have found, give them a period of time to tell us if there is an issue. And then when we publish the rankings there is also an appeal period, when they can comment and say ‘that’s wrong’ and if it is wrong we will change it. I am relatively confident that that part of it is as robust as can be” says Sam Gill.
ET Index Research joined the Social Stock Exchange for a variety of reasons, including help with fund-raising. “We raised finance in the past and this time we are going to raise a larger amount. I think there was a recognition that we needed to connect with people that do that professionally and who have a wider network than we have direct access to. That’s one part of why we joined,” says Sam Gill. “But the other component is the recognition that we are a social enterprise. It fits with our ethos and it’s good to be recognised for that.” The company is relatively new – founded in 2014 with the help of the EU, although it originated as a not-for-profit in 2010 – and is now looking to raise £10 million to finance various developments, including an exchange traded fund (ETF), a global, fossil-free low carbon ETF. A further tranche of the new funding would be used to expand the business beyond carbon emissions, to embrace companies that are set to do well as the world de-carbonises, which ET Index Research calls ‘green revenues’ (such as battery storage developments). The company is also looking to extend its rankings beyond carbon to include other major sustainability questions.
For those interested in accelerating the shift to a low carbon economy, ET Index Research may well turn out to be an invaluable tool.
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