KLD Global Climate 100 Index: A Closer Look at Methodology

The KLD Global Climate 100 Index (GC 100), launched in July 2005, is a specialty index designed to promote investment in global companies whose activities demonstrate the greatest potential for mitigating immediate and long-term causes of climate change.

To determine the constituents for the GC 100, KLD applies an innovative methodology that includes research, qualification, and selection steps. The process is designed to select leaders in three technology and "best practice" categories: Renewable Energy, Clean Technology & Efficiency, and Future Fuels. These leading companies are in established industries such as automobiles and utilities, and in industries of the future, such as wind energy, photo-voltaics, hydrogen fuels and technologies that reduce emissions of greenhouse gases.

Research
The research process identifies potential candidates from the eligible universe of all global public companies. KLD conducts original research and gathers information from third-party sources including industry organizations, NGOs and investment analysts. KLD continuously monitors companies on the Index and potential candidates.

Qualification
The qualification process identifies financially viable companies that are leaders in addressing the conditions that contribute to global warming. KLD defines leadership in this context by level of involvement in and commitment to themes that define the Index.

Companies exhibiting leadership within these areas promote innovation and use of newer generation technologies and efficiency practices. These companies innovate and promote in a way that influences their markets. They make the technology or practice commercially viable, and have the capacity for transforming a technology or practice from alternative to mainstream.

Based on qualitative and quantitative measurements of leadership, such as revenues and investment dollars in climate solutions, emissions avoided or reduced, and high focus on climate policies and management systems, KLD assigns a climate rating to potential candidates. These ratings help frame and support the decisions of the GC 100 Index Committee.

The qualification process also evaluates the financial viability of potential candidates using measurements of size (minimum 12-month trailing average market-cap of $50 million) and liquidity (minimum 12-month trailing average price of $2). Companies are qualified for inclusion in the Index based on their climate rating and financial viability, but must then be selected for inclusion.

Selection
The Global Climate 100 Index Committee selects holdings from the pool of qualified companies. The Committee's decisions, based on index construction rules, are intended to achieve diversification, representation and investability objectives. The Committee maintains the Index at 100 companies at all times, with each decision balancing the rules governing climate themes, geographic regions, sectors and size characteristics.

The diversification of the GC 100 is broader than most environmentally oriented indexes. Many focus on an industry segment of energy and industrial technology companies, often small industrial or technology companies in the US and/or Europe. The GC 100 reaches beyond this universe to include companies from most sectors, 16 countries, and both small-cap companies in niche markets as well as some of the world's largest companies in industries that have the greatest impact on climate change.

A New Investment Strategy
The innovative construction of the GC 100 defines a new strategy for investors to support global companies that are leaders in providing solutions to climate change. The launch of the Index heightened the awareness of climate change in the investment community. KLD looks forward to licensing the Index so individual and institutional investors have the opportunity to invest in the companies that will have the greatest positive impact on climate change in the coming years.

KLD Global Climate 100 Index: Overview of Methodology