Methodology
The CQ500 Index represents the cost to permanently remove CO2 from the atmosphere once emitted relative to the value of the tangible assets that produced the emissions. It is calculated as the weighted-average Carbon Quotient Ratio of all indexed companies, weighted by tangible assets. Lower is better. To reach carbon neutrality or “net zero”, the Index must reach zero.
What the Carbon Quotient Ratio measures
The Carbon Quotient Ratio is a normalized measure of transition risk — the imputed cost of a company’s future carbon emissions, expressed relative to the value of the long-lived tangible assets (property, plant & equipment, or “PPE”) that produce those emissions. A company with high current emissions and a long remaining PPE Life carries more of that future cost than one with the same emissions today but assets that turn over quickly.
The core formula
The Carbon Quotient Ratio is built from three figures, all drawn from a company’s own financial filings and emissions disclosures, and one assumed variable (the cost to permanently remove carbon emissions from the atmosphere):
- PPE Life
- = PPE ÷ DD&A Expense
- Carbon Expense
- = Realized Emissions × Carbon Price
- Unrealized Carbon Expense
- = Carbon Expense × PPE Life
- Carbon Quotient Ratio
- = Unrealized Carbon Expense ÷ PPE
Realized Emissions are a company’s direct (Scope 1) emissions in tCO2e for the current period. Carbon Price is a fixed $100/tCO2e assumption, not a market price — see Carbon Price in the glossary.
Decomposed: Carbon Intensity
The same result can be read as two independent drivers of risk — how emissions-intensive a company’s assets are, and how long those assets will keep producing emissions:
Carbon Quotient Ratio = Carbon Intensity × PPE Life, where Carbon Intensity = Carbon Expense ÷ PPE
Pro forma financial impact
Carbon Expense and Unrealized Carbon Expense are also used to show what a company’s financial statements would look like if that future carbon cost were already recognized:
- Adjusted Net Income = Net Income − Carbon Expense, and Adjusted EPS = Adjusted Net Income ÷ diluted shares
- Adjusted Total Assets, Adjusted Stockholder’s Equity, and Adjusted Market Capitalization each subtract Unrealized Carbon Expense from their reported balance-sheet or market figure
Full definitions for every term above are in the glossary.
Data sources
Financial figures (PPE, depreciation, revenue, net income, shares outstanding, and related fields) are pulled directly from each company’s SEC EDGAR XBRL filings. Scope 1 emissions figures are sourced from each company’s own sustainability or ESG disclosures, with the source document archived and the specific figure verified against the archived source. Every published company page links to its financial and emissions source documents.
Data quality & edge cases
A small number of companies are missing one or more inputs the Carbon Quotient Ratio needs in a given year — most often Scope 1 emissions data isn’t publicly disclosed. Rather than estimate a missing figure, that company’s Carbon Quotient Ratio is left unpublished for that period.
PPE Life normally uses a company’s reported Depreciation expense. When a company hasn’t reported Depreciation for the current period — for example, because its filings report only the combined Depreciation, Depletion & Amortization figure — PPE Life falls back to that combined figure instead.