Since March 2015 the Guardian has been running a campaign calling on the Bill & Melinda Gates and the Wellcome Trust foundations to divest from fossil-fuels. This builds on a wider divestment movement that now includes over 200 institutions globally committed to divesting their holdings of fossil-fuel companies over the next 5 years.

This series of briefing notes (available in the ET Research section of the website) do not question the merits of divestment from a campaigning point of view - clearly fossil-fuel companies are a legitimate target for concerned citizens alarmed that their business models are incompatible with avoiding dangerous climate change. Instead the briefing series asks if it is the most effective solution, or if there is a complementary solution that could be more effective at both reducing carbon exposure and encouraging corporates to lower emissions

Environmental Tracking (ET) is a simple mechanism made up of two key components. The first, is a set of ET Carbon Rankings. Here, the largest companies in the world are ranked according to their publicly-disclosed greenhouse gas emissions data. This includes their supply chain (Scope 3) emissions, which are often the most significant source of emissions. In the case of companies failing to publicly disclose data, they are benchmarked against the company with the highest reported emissions figure within the same sector, providing a constant incentive for disclosure.

The second, is a series of ET low-carbon indexes. These are stock market indexes just like, for example, the FTSE 100 or S&P; 500. They contain all of the same companies as conventional benchmark indexes, not just those which are ‘low-carbon’. The difference between ET low-carbon indexes and traditional stock market indexes is that they are designed to redirect capital from high-carbon to low-carbon companies. They do this by re-weighting companies according to their position in the fully transparent ET Carbon Rankings.

Building on the approach of divestment, which only targets fossil-fuel companies, each and every company within the stock market is penalised or rewarded based on their carbon emissions. This is designed to push up the cost of capital for carbon-intensive companies.

This approach is the embodiment of engagement.

Since all companies are publicly ranked it provides an open platform for ET investors to monitor progress in a transparent way and demand that companies lower emissions. For companies, the only way to move up the ranking is to lower emissions and to encourage the companies within their supply chains to do the same, in turn gaining a greater weighting in the index and therefore a greater share of investment from those tracking the index.

As any investor will know, money speaks louder than words.

As this briefing demonstrates, investors can achieve a greater emissions-intensity reduction through Environmental Tracking than divestment alone, without compromising on returns.

For investors committed to pursuing a divestment strategy, ET Fossil Free indexes offer the ability to combine divestment with Environmental Tracking, re-weighting the remaining companies in the portfolio according to their carbon emissions once fossil-fuel companies have been excluded.

Briefing notes examining the effects of this approach on FTSE 100, S&P; 500, and MSCI ACWI funds are available in the ET Research section of the website.