S&P Dow Jones Indices (S&P DJI) has been calculating indices designed to exclude companies with fossil fuel reserves since December 2011, when the S&P Global 1200 Fossil Fuel Reserves Free Index was launched. This index, along with its sub-indices such as the S&P 500^® Fossil Fuel Reserves Free Index, measure the performance of companies in their respective underlying benchmark that do not own fossil fuel reserves. As such, these indices may be considered by investors who seek benchmarks to reflect a strategy that divests from fossil fuel reserves.

In July 2024, S&P DJI launched the S&P/TSX Composite Fossil Fuel Reserves Free Index, furthering the relationship between S&P DJI and TMX Group. Similar to the already available S&P/TSX 60 Fossil Fuel Reserves Free Index, this new benchmark follows the same methodology rules as others in the series, but applies them to the broader universe of the S&P/TSX Composite. The index is a benchmark for the broad Canadian equity market that excludes companies with fossil fuel reserves.

Regarding index construction, stocks from the starting universe, in this case the constituents of the S&P/TSX Composite, are screened as seen in Exhibit 1 to exclude those companies with exposure to fossil fuel reserves. Within this approach, the index uses 2P or “proven and probable” reserves as a proxy for exposure, which are those with more than a 50% probability of being recovered. The index is rebalanced quarterly to ensure regular data updates, and it is float-market-cap weighted in an effort to closely reflect the composition of the benchmark.¹

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As a result of applying these screens, the index composition does change slightly when compared to the benchmark, the S&P/TSX Composite. In terms of GICS^® sectors, we observe an underweighting of Energy owing to the fossil fuel reserves exclusions, with a corresponding overweighting of Financials to compensate. There are also other slight overweights across the board (see Exhibit 2).

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In terms of constituent make up, the exclusions lead to a slightly greater concentration of the top 10 constituents of the S&P/TSX Composite Fossil Fuel Reserves Free Index versus the benchmark. As Exhibit 3 shows, the top 10 stocks collectively have a greater weighting within the fossil fuel reserves free index, owing to fewer stocks to select from given the applied exclusions.

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The index screens out stocks utilizing S&P Global Trucost environmental data specific to fossil fuel reserves. The screening results in a total of 32 stocks being excluded, representing 9.61% of the benchmark weight as of Jan. 29, 2025.

Historically, the index has exhibited similar risk/return characteristics as the benchmark. As shown in Exhibit 4, when looking at back-tested data, the index maintained similar performance to the benchmark over the 10-year period.

The S&P/TSX Composite Fossil Fuel Reserves Free Index also had a relatively low tracking error over the 10-year period, just 0.69% when compared with the benchmark.

In summary, the S&P/TSX Composite Fossil Fuel Reserves Free Index has historically matched the performance of its benchmark closely, while excluding companies with exposure to fossil fuel reserves. With a number of index-based approaches to climate change-related considerations currently available, this index and its broader series represent one strategy where market participants can gauge the performance of companies, while excluding those with exposure to fossil fuel reserves.

¹ For the full methodology, please see: S&P/TSX Fossil Fuel Reserves Free Indices – Methodology

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