November 29, 2023

Decarbonisation in equity benchmarks: Tracking the portfolio carbon transition

Written in partnership with the UN-convened Net Zero Asset Owner Alliance (NZAOA), this paper, the second in an annual series, analyses trends and measurement techniques for portfolio carbon exposure using the FTSE All-World Index as the reference benchmark.

What our research means for investors

We highlight that analysing portfolio emissions results requires careful interpretation and recommend that investors: 

  • Rely on a dashboard of portfolio emissions metrics instead of a single measure to avoid idiosyncratic biases
  • Focus on multiyear trends rather than year-on-year fluctuations, given the volatility of most portfolio emissions metrics
  • Conduct careful attribution analysis for observed changes to identify real world emissions reductions vs sources of volatility

Our analysis of the FTSE All-World Index highlights that: 

  • With a rebounding global economy post COVID in 2021, emissions declines have moderated, with typical firm-level emission reduction decreasing from 5% to 1%, and a quarter of reporting index constituents increasing emissions by at least 10% in 2021
  • Year-on-year intensity changes are often dominated by the attribution factor (i.e., weight and normalisation factor) rather than emissions, as emissions are often less volatile than the normalisation metrics used to calculate carbon intensities
  • Dynamics in high carbon sectors drive a large proportion of portfolio carbon intensity. For example, reductions in constituent weights in high-carbon industries (Energy, Utilities, Basic Materials, and Industrials) account for 64% of the WACI reduction between 2016 and 2021 
  • Scope 3 emissions portfolio metrics need to be interpreted carefully as evolving disclosure practices drive instability in portfolio level results

Points of differentiation:

  • This paper is written in partnership with the UN-Convened Net Zero Asset Owner Alliance, a member led initiative of 86 institutional investors representing US $9.5 trillion in total assets1, ‘committed to transitioning their investment portfolios to net zero GHG emissions by 2050'
  • This report marries FTSE Russell’s deep expertise in portfolio analytics and best-in-class sustainable investment IP to highlight challenges and best practices in evaluating and tracking portfolio decarbonisation over time.

1 The Net-Zero Asset Owner Alliance releases a foundational paper for asset owner expectations of asset managers’ climate engagement – United Nations Environment – Finance Initiative (, as at 16th November 2023.

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