Using a novel approach based on corporate data from the Bloomberg ESG library, we estimate GHG intensities for industrial and precious metals constituents in the BCOM benchmark index. Aggregating company-level data to provide macro estimates allows us to account for variations in emissions by geography, extraction processes and operation size along with providing a degree of transparency regarding the underlying source data. This publication—which focuses on the metals sectors and GHG emissions—is an initial step in providing coverage spanning the BCOM universe across a range of environmental, social and governance factors.
We also discuss how several common approaches to portfolio construction can be used to incorporate these ESG scores into commodities benchmarks. The three approaches discussed inverse weighting, rules-based tilting and optimization— provide a a range of choices that trade-off between complexity and control in managing deviations from the benchmark. Depending on requirements, readers can modify each of these to construct custom ESG-tilted benchmarks.
In future research, we intend to expand our analysis to cover the remaining sectors using the Bloomberg ESG materiality map as a guide. By identifying the key issues for each of the three pillars, commodities portfolios can reflect investors’ ESG objectives while displaying the diversification and inflation-hedging properties of this asset class.