The Barclays Capital Global Carbon Index (BCGI) comprises two sub-indexes based on exchange-traded carbon futures contracts under the EU Emission Trading Scheme (EU ETS) and the over-the-counter certified emission reductions (CER) contracts under the Kyoto Clean Development Mechanism. The bank deemed the liquidity in these two contracts the most sufficient to warrant constructing an index.
"We feel establishing the BCGI benchmark will provide transparency and shine a light on this developing market. It will enable people to track and observe the carbon markets better and, therefore, bring in other investors who might be standing on the sidelines,” said Waqas Samad, London-based head of index products at BarCap.
He added that, because the market is still in its nascent stages, the bank has taken both a quantitative and qualitative approach to creating and evaluating the index. The index is governed by an eight-member committee consisting of representatives from BarCap, Stichting Pensionfonds, ABP, Barclays Global Investors, Kolibri Capital, Pacific Investment Management Company and New Carbon Finance.
The EU ETS sub-index accounts for 80% of the overall index’s performance, while the CERs sub-index has a 20% weighting. However, Samad said BarCap expects that exchange-traded futures based on the CER will be launched within the next six months, and at that time the committee will re-evaluate the make-up of the index.