August 10, 2022

Decarbonising fixed income investment

As investors increasingly look to manage the carbon exposure in their portfolios, it is critical that they have the right tools. There are many ways investors can address the carbon exposure in their portfolios, including explicit divestment, tilting, optimisation and shifting assets toward companies that are developing greener solutions.

The FTSE Fixed Income ex Fossil Fuels Enhanced Index Series represents the performance of the bonds in FTSE fixed income indices after the exclusion of issuers that have exposure to the Fossil Fuel sector, through direct involvement or company ownership. This includes companies involved in fossil fuel production, related products or services, as well as distribution, retail and power generation. In addition, in accordance with FTSE Russell’s Baseline Exclusions Consultation, the index excludes companies involved in tobacco production, controversial weapons and those companies violating the UN Global Compact through controversial conduct.

This index series helps meet the rising demand for calibrating exposure to fossil fuels in fixed income portfolios and provides a solution for asset owners and asset managers seeking bond benchmarks that help meet the global push toward net-zero greenhouse gas (GHG) emissions.

In this paper, we discuss some investors’ need to reduce or calibrate their exposure to fossil fuels and carbon intensive assets, and the principal design features of the FTSE Fixed Income ex Fossil Fuels Enhanced Index Series.