This paper introduces a new risk measure called Active Business Risk, based on the excess level of sector or industry exposure in a portfolio or index and shows that Active Business Risk is an important driver of portfolio return. Most passive indices carry unmanaged industry exposures due to their weighting methodology (e.g. market cap or equal weight). The paper compares the Active Business Risk Score for several core equity indices that are perceived to be well diversified and shows that they currently carry an elevated level of Active Business Risk. Portfolios with high Active Business Risk Scores have higher sensitivity to economic shocks which impact companies with related business risks, often causing the portfolio to perform poorly relative to more diversified alternatives. We conclude that Active Business Risk is a quantifiable risk that is not adequately diversified by cap weighted indices, leading to inefficient capture of their potential equity risk premia.