Global index, data and analytics provider FTSE Russell announced today the launch of the FTSE EU Climate Benchmarks Index Series, a family of equity indices aligned with the climate goals of the Paris Agreement, covering a broad range of developed and emerging equity markets.
The Paris Agreement is a multi-nation pact developed by parties to the United Nations Framework Convention on Climate Change (UNFCCC) to combat climate change. The agreement’s main goal is to limit the global temperature increase in this century to below 2 degrees Celsius above pre-industrial levels, and to work toward limiting the increase to 1.5 degrees.
The new series includes the FTSE Paris-aligned Benchmark (PAB) Indexes, following the EU’s Technical Expert Group on sustainable finance’s (TEG) most stringent criteria for investment products that seek to demonstrate alignment with the Paris Agreement. By meeting the PAB requirements, the indices aim to achieve a 50% reduction in carbon emissions over a ten-year period, while also including Transition Pathway Initiative’s (TPI) analysis of how the world’s largest and most carbon exposed companies are managing the climate transition.
FTSE Russell stated that it also plans to launch a suite of equity indexes aligned to the EU Climate Transition Benchmark (CTB) criteria later in 2021.
Aled Jones, Head of SI Product Management, EMEA, FTSE Russell said:
“Major asset owners are increasingly using climate benchmarks as an effective way to both quantify, and respond to, climate risks and opportunities. We are continuing to see rapid adoption of climate-themed indexes and data sets, especially in the UK and continental Europe. These indices represent the tools investors need to reallocate equity and fixed income portfolios and ultimately achieve climate objectives.”
Utilizing the FTSE Target Exposure Framework, the index applies a transparent tilt exposure towards and away from index constituents based on their climate risk exposure, including underweighting companies with significant fossil fuel reserves or high emissions, overweighting companies engaged in the transition to a green economy, and tilting towards or away from companies based on their carbon performance.
According to FTSE Russell, UK pension fund manager Brunel Pension Plan has licensed a FTSE Russell PAB index to give its clients the opportunity to adopt it for their passively-managed fund, and will also move its performance benchmarks for its range of active equity funds to FTSE Russell’s PAB benchmarks. Brunel played a significant role in the development of the new index series, including aligning both the PAB and CTB approaches to guidance such as the IIGCC Net Zero Investment Framework, which recommends investors to limit exposure to Thermal Coal and Oil Sands.
David Cox, Head of Listed Markets, Brunel Pension Partnership, said:
“The broader Brunel Pension Partnership has set out major ambitions on climate investing but also on encouraging wider industry change. This initiative with FTSE Russell enables us to do both, providing a new way to ensure our passive funds are Paris-aligned. Our work with our clients, investment managers and the broader industry has therefore enabled us to make rapid progress as a partnership in a challenging area, finding the climate solutions we need – even when they don’t yet exist.”
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