Environmental investing is hard, and most likely these indices get it wrong.
What you want to do is to value all operations of the company in a hypothetical world where operations damaging the environment are not permitted. You will find that all fossil fuel operations reduce their value to zero. However, it is important to note that they reduce to a zero value, not to a negative value, because the operations can be discontinued. So a company having fossil fuel operations can still have value if it has some other operations too that have lot of value in the hypothetical world.
A good example about why this may be counterintuitive is by far my largest stock investment, Fortum.
Fortum used to be a company that created mainly electricity, using primarily carbon-free generation methods such as hydropower and nuclear power. (It also has some fossil fuel operations in Russia which caused its stock price to reduce recently.)
Then Fortum bought 75% stake of Uniper. Uniper creates electricity using primarily carbon-producing generation methods such as coal power, oil power and gas power, but also some hydropower and nuclear power. (Uniper also has some fossil fuel operations in Russia which caused its stock price to reduce recently, in addition to selling Russian natural gas to European users.)
After buying this 75% stake, the per-kilowatt-hour carbon dioxide production of Fortum skyrocketed. All the newspapers are writing about its dirty carbon footprint.
Many might consider this purchase of Uniper a mistake. But was it?
No, it wasn't.
Firstly, the purchase price was so cheap (valuing the entire company as 8 billion euros) that it made sense to buy Uniper just for the hydropower and nuclear power because I estimate the valuation of these to be about 14 billion euros.
Also existing gas plants have some value. A gas-fired power plant can be modified to be zero emission by modifying it to run on hydrogen, which certainly will be done. Thus the 8.8 gigawatts of gas capacity may be worth 0.3 EUR / watt (constructing new one might cost 0.8 EUR / watt). Furthermore, the underground gas storage capacity of Uniper has value too: in the future, clean hydrogen can be stored there. The coal capacity however has zero value, it can't be used in a hypothetical clean world.
So, today for an intelligent investor Fortum is a very good investment: in the hypothetical world where fossil fuel can't be used to create electricity, the price of electricity rises at times when it's neither windy nor sunny, and the hydropower and nuclear power plants create a lot of profit then, and most likely the gas capacity will be modified to help create electricity at non-windy and non-sunny times using hydrogen produced from electrolysis at windy or sunny times.
So, the question is: do you consider Fortum a good investment for a clean world? Even though it has lots of dirty fossil fueled electricity generation capacity, it actually is a very good investment for a clean world.
Also a second example to think about: when thinking about electric cars, most think about Tesla. Tesla produces about 930 000 EVs per year.
Volkswagen ships about 400 000 EVs per year.
Tesla has a valuation of 735 billion dollars and Volkswagen of 85 billion euros or 89 billion dollars.
So Volkswagen's valuation is 222 500 USD per EV/year and Tesla's is 790 323 USD per EV/year.
With Tesla, you get just the capacity to produce those 930 000 EVs per year.
With Volkswagen, you not only get the capacity to produce 400 000 EVs per year, but also about 9 million non-EVs per year. The capacity that produces those non-EVs can likely be modified to produce EVs with some minor costs, assuming batteries can be sourced from somewhere.
So if you want to invest in EVs, you don't want to invest to Tesla. You do want to invest to Volkswagen.
I don't know why Tesla was delisted but seemed like an excellent move, because a green investor doesn't want Tesla; a green investor wants Volkswagen. You get more for less with Volkswagen.