A new index covering the US equity markets and excluding fossil fuel investments has been launched in an effort to support the growing global divestment movement.

The Fossil Free Indexes US (FFIUS), launched by the ethical investing research company Fossil Free Indexes, is based on the Standard & Poor’s 500 (S&P 500) but is screened to exclude oil, gas and coal giants.

Carbon-intensive energy generation is the biggest contributor to climate change. Energy companies continue to search for new fossil fuel reserves, despite warnings from financial analysts that 80% of known reserves must never be used if dangerous climate tipping points are to be avoided.

As concern grows over the impact these firms have on the environment, many investors have sought more sustainable alternatives in recent years.

The surging fossil fuel divestment movement calls on shareholders to ditch their stakes in such companies and support renewable energy and energy efficiency schemes instead.

Aside from the ethical case, there is also a strong financial case for divestment. If policies are introduced to ensure that the majority of fossil fuel reserves that cannot be burnt remain buried, the assets of fossil fuel firms would be severely devalued – becoming ‘stranded assets’ – according to the UK-based Carbon Tracker Initiative, a pioneer in the field.

Combining a broad index with the removal of the risk now associated with fossil fuel firms, Fossil Free Indexes hope its efforts will convince more investors to commit to the movement. An investable product based on the index will also be available in the coming months.

“The science and effects of climate change are clear”, said Stuart Braman, founder and CEO of Fossil Free Indexes.

“Our products will be common-sense, accessible, low-risk options for institutions and individuals to help protect the planet along with their investments.”

Fossil Free Indexes argues the index also disproves the myth that investing sustainably compromises returns. Over the 10 years ending on May 30 2014, the correlation between returns on the index and the S&P 500 has been high, the group says.

The FFIUS is the first index of its kind in the US, though in the UK, the FTSE Group and BlackRock recently launched a similar index series. The FTSE Developed ex Fossil Fuels Index Series also excludes companies linked to the exploration, ownership or extraction of fossil fuels.

The FFIUS has been adopted as the official list of the divestment movement by 350.org, the protest group that has spearheaded the international campaign.

Photo: thewritingzone via Flickr

Further reading:

Finance directors of British universities to discuss fossil fuels divestment

University of Oxford academics demand fossil fuel divestment

Index identifies most polluting companies for divestment campaign

IPCC report proves fossil fuel investors are ‘wrecking our future’

Netherlands to end funding for overseas coal plants in boost for fossil fuel divestment campaign