The Thomson Reuters/Future Super Australia Fossil Free Index and the Australia Sustainable Leaders Fossil Free Index were launched yesterday.
Future Super is a retail fund founded by former Get Up national director Simon Sheikh that describes itself as a 'Australia's first fossil-free superannuation fund'.
The super fund plans to make the custom-built indices available to its members in the coming months.
The Fossil Free Index uses the Thomson Reuters Australia Index as its starting universe, and then applies three negative screens.
The first screen removes companies directly involved in fossil fuels; the second removes companies that provide services specific to the fossil fuels industry; and the third removes companies that finance significant fossil fuels projects.
The Sustainable Leaders Fossil Free Index uses the same screening process and then applies positive and negative environmental, social and governance (ESG) criteria.
Both funds have outperformed the Thomson Reuters Australia Index in back-testing, with the Sustainable Leaders Fossil Free Index delivering an annualised return of 17.9 per cent since 8 April 2013.
Thomson Reuters Asia Pacific head of indices Philippe Shah said ESG and passive investing is a "sweet spot" for Thomson Reuters.
"ESG is becoming more and more important. I’m talking to a lot of the pension funds in Australia and they take it very seriously," Mr Shah said.
"To be able to offer a sustainability-focused index via a passive product is really interesting."
The indices are systematic, rules-based and have a transparent methodology, Mr Shah said – which means that when they do become investible "you’ll know exactly what is in the index and how it’s being held".
Mr Sheikh said he expects the demand for fossil fuel-free investing to increase in the next 12 months.
"In the 12 months since launching Future Super, over $80 million of superannuation savings have been diverted to a fossil fuel-free investment strategy," Mr Sheikh said.
"While a constant stream of research has been released pointing to the poor recent performance of fossil fuel-exposed companies, our fossil fuel-free indices provide potential investors with a day-by-day analysis of the performance of this investment strategy."
