Environmental issues (and, in particular, climate change) are a significant consideration in any broad ESG strategy. This concern can be tackled in many ways, such as best-in-class investing, engagement, or divestment. Given the importance to many investors in reducing the carbon footprint, the RAFI ESG Index series excludes fossil fuels companies.
Companies deemed to have a major involvement in the fossil fuels industry are excluded. Major involvement is defined as a company whose primary business is exploration and production, which includes services supporting the extraction phases of drilling and oilfield services, contract mining, and offshore rigs leasing; transportation services, which includes pipelines, oil and gas storage, and shipping; LNG (liquefied natural gas) facilities; plants; crude oil trading; electricity generation from coal; oil shale; oil and gas; and peat. Also excluded is any company that holds reserves of oil, coal, or natural gas; any company that derives 10% or more of its revenue from fossil fuels industries; and any company involved in the extraction of coal or tar sands and oil shale.
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