FTSE Russell today launched the FTSE Fixed Income TPI Climate Transition Index Series and the FTSE Fixed Income TPI Focused Glidepath Index Series, two new indices designed to help investors align their strategies with global climate goals. These indices are designed to support achieving the sustainability goals and driving low-carbon transition in addition to providing data-driven capabilities that enable the evaluation of the company performance against climate metrics. The launches mark FTSE Russell’s persistence in designing complex solutions that continue to help investors meet their climate commitments.
FTSE Fixed Income TPI Climate Transition Index Series
Designed to reflect the steadily growing need for sustainable investment strategies in the management of climate risks and opportunities, FTSE Fixed Income TPI Climate Transition Index uses comprehensive set data about sustainable investments, turning the multi-asset class index focus towards a fixed-tilt framework based on five main climate factors.
1. Carbon Emissions: It measures the carbon intensity of companies and argues whether the company is in line with environmental impacts and global decarbonizing efforts.
2. Green Revenues: It takes into consideration the component of its revenues that firms receive from those green activities by rewarding firms for contributing to a sustainable future.
3. Green bonds: Companies that issue green bonds are seen favorably within the index; green bonds, after all, are used to finance positive environmental outcomes of the projects.
4. TPI’s Management Quality scores: The Transition Pathway Initiative ranks how each of the companies manages their climate risks exposure. And, as such, this score will influence the weight of companies within the index.
5. Carbon Performance scores TPI: This ranking assesses the grade companies have established for themselves to meet international climate ambition, particularly well below 2°C in global warming to be reached by the Paris Agreement.
By incorporating these measurements, the Climate Transition Index will attempt to incorporate into the structure the performance of global and regional fixed-income markets directly addressing financial risks and opportunities with the transitioning towards a low-carbon economy. The index allows the investor to rebalance its portfolio, direct capital into companies that are making meaningful progress in their climate transition.
FTSE Fixed Income TPI Focused Glidepath Index Series
FTSE Fixed Income TPI Focused Glidepath Index Series is a long-only, buy-and-hold strategy for corporate bonds. This new approach in fixed income reinvests capital flows of matured bonds into companies on the path toward net-zero emissions by 2050 under the Paris Agreement, or the proceeds are reinvested in entities making headway toward a sustainable, low-carbon economy.
This index series places specific attention, in particular, on minimizing tracking error while maintaining a forward-looking investment strategy. Targeting corporations aligned to the global climate goal, this index delivers increasingly clear pathways for investors to transition their portfolios toward a more climate-resilient future without ceding any performance.
FTSE Russell climate indices have evolved along with the growing complexity of sustainable investors, argues Scott Harman, Head of Fixed Income, Currencies, and Commodities at FTSE Russell. “We have seen an increase in demand for indices that integrate company activity within the green economy, the leverage forward-looking metrics.” In this way, these indices remain pertinent in an increasingly important landscape of investment into sustainability and long-term mitigation of climate risks.
Supporting Sustainable Growth
The two newly launched indices are designed to be a very powerful resource for investors to address climate risks and opportunities. The two new indices are precious resources for investors seeking to integrate climate factors into their portfolios.
This is supplemented by TPI metrics, which utilize the indices to not only measure the current climate performance of a company but, more importantly, those indices help in assessing how companies are preparing themselves for the future regarding transition into a lowcarbon economy. Of course, this plays well to the increasingly investor demand to have holistic sustainability information that enables actual cross-company and crosssector comparisons.
More Demand for Climate Integration
Most importantly, these indices have been introduced at the time when sustainable investing goes to the forefront of global financial markets. Increasing pressure from regulators and stakeholders on increasingly demanding investors has created a need for instruments through which climate factors can easily be included in investment strategies. These indices will therefore meet this urgent demand by providing investors with a clear and structured way in which portfolios will be adapted in order to attain the goals of the Paris Agreement.
The Climate Transition Index and Glidepath Index Series are engaging with climate risks but also offer opportunities to capture new growth in the green economy. Companies moving towards a low-carbon model will be deriving potential gains from a growing market for green products and services. In this way, through investment, a client can have a share in the financial returns generated by a shift toward sustainability.
A Step Toward Paris Alignment
As more of the world investment community is increasingly recognizing the need to align with climate goals, new FTSE Russell indices are providing tangible means for investors to support the objectives of the Paris Agreement. To align with investor needs for transparency, accountability, and forward-looking climate data, therefore, carbon performance, green revenues, and other climate metrics are part of these indices.
As the campaign goes along, says Harman, “We are empowering investors with the tools they need to make informed decisions about the climate impact of their portfolios.” Through new indices, FTSE Russell is offering a way that not only addresses climate risk but also helps investors position themselves for the opportunities available in this low-carbon future.
Conclusion
The FTSE Fixed Income TPI Climate Transition Index Series and the FTSE Fixed Income TPI Focused Glidepath Index Series launched under the umbrella represent a major milestone in the evolution of sustainable investing. They present an important tool for investors to achieve the alignment of their portfolios with the Paris Agreement and thus drive positive change in the economy. Since these indices focus more on data-driven climate metrics, they work better for the investor’s advantage to support the transition towards a low-carbon future while capturing all the financial opportunities created by the green economy.