We see this as indicative of only extremely strong price dynamics in fossils being able to counteract a secular decarbonisation trend: when such fossil price dynamics subside, low carbon credit appears to continue outperforming.
The outperformance by 1.9% in return terms may seem small in the context of other investment return prospects, but for a benchmarked real money manager, this would be considered sizable. The low carbon relative performance index is constructed by using an identical set of issuers (based on the S&P IG corporate bond index) but reweighting portfolio weights using the ECOBAR methodology and a duration and spread beta neutral weighting scheme.
The ECOBAR system is generally less restrictive and more flexible than exclusion-based ESG strategies, for example allowing traders to increase positive impact (scoring) through shorting underperformers and adjusting for term-structure effects in credit. ECOBAR scoring posits an exponential increase in scores for high-carbon emitters.