The index includes top 20 companies based on green house gas numbers, free float market capitalization and turnover.
"It is based upon purely quantitative and objective performance signals to assess carbon performance," BSE said in a statement.
"In keeping with BSE's efforts to create fund friendly indices, it is the third index which is calculated based on the capping methodology. This index will be helpful to asset managers for creation of various products, to help investors to invest in the green theme of India," it added.
The index is expected to have a feedback effect on companies' reputation.
It will help the government to gauge policy implementation and acceptance with regard to energy usage and efficiency measures, as the market follows an efficient signalling mechanism which adjusts positively or negatively to any news or policy shifts.
"It is my belief that companies and investors in developing countries like India, need to recognize the value created by corporations through the efficient and sensible use of energy," said Minister of Corporate Affairs M. Veerappa Moily after inaugurating the index.
According to Madhu Kannan, managing director and chief executive officer of BSE, India is in a unique position to create a low-carbon green economy.
"So far India has focused on the fiscal aspect of economic growth. Now, it's time we think about the environmental aspects of growth also," said Kannan.