Bloomberg has introduced the Bloomberg Commodity Carbon Tilted Index, a climate-focused version of the flagship Bloomberg Commodity Index (BCOM).
The index tilts towards commodities with lower greenhouse gas emissions as measured throughout their lifecycle.
BCOM is one of the most well-established benchmarks for the performance of the broad commodities universe and a popular underlying reference for both passive and actively managed ETFs.
It consists of 24 individual commodity futures across six commodity sectors: energy, grains, industrial metals, precious metals, softs, and livestock. Commodities in the index are weighted two-thirds by liquidity and one-third by global production while capping the influence of any single commodity sector at 33%.
BCOM’s target weights for 2023 are energy (29.95%), grains (22.64%), industrial metals (15.94%), precious metals (19.44%), softs (6.97%), and livestock (5.06%).
The new carbon-tilted index aims to significantly reduce BCOM’s carbon footprint while simultaneously limiting tracking error and delivering a similar risk/return profile. It does this by maintaining the same target sector weights as BCOM while applying a tilt factor to individual commodities within each sector, overweighting those with lower greenhouse gas emissions per unit of production as measured through the commodity’s entire lifecycle.
According to Bloomberg, based on back-tested data from 2012 to 2023, the carbon-tilted index exhibited 20.5% lower greenhouse gas emissions per year, on average, compared to BCOM.
Allison Stone, Head of Multi-Asset Product, Bloomberg Index Services, commented: “The BCOM Carbon Tilted Index is designed with investors’ complex needs in mind. There is a growing want to support the transition to a low-carbon economy while remaining aligned with their investment goals across all asset classes. Utilizing a foundation of Bloomberg carbon research, this index has been constructed using an innovative methodology that speaks to priorities of sustainability and diversification, while still providing the liquidity that commodity investors commonly seek. We are proud to continue to deliver new indices that meet this challenge and can help take the market forward.”