Stephanie Maier
Lee Clements
As global economies accelerate decarbonisation, investors face the challenge of balancing sustainability with performance. The FTSE TPI Climate Transition Index series offers transparent, forward-looking, and multi-asset solutions to align portfolios with net-zero goals while managing risk.
- Forward-looking approach: Indices integrate TPI Management Quality and Carbon Performance scores to track corporate transition efforts, linked to future decarbonisation.
- Balanced methodology: Combines carbon risk, climate opportunities, and transition efforts using transparent rules-based tilting.
- Broad application: Offers equity, fixed income, and infrastructure solutions to meet diverse sustainability and performance needs.
As the energy transition gathers pace, touching broad swathes of the global economy, investors are navigating an increasingly complex sustainability landscape. With growing demand for climate-conscious strategies, the spotlight has turned toward transition-focused investment solutions—tools designed to align capital with decarbonisation goals.
Notwithstanding the contributions of groups like the UK Transition Finance Review, GFANZ, and the IIGCC, defining what truly qualifies as a “good” transition investment remains a nuanced challenge.
The investor’s dilemma
Today’s market presents sustainability-focused investors with a delicate balancing act:
- Adhering to robust sustainability principles
- Navigating volatile performance
- Identifying credible solutions across multiple asset classes
If you're considering a transition-aligned investment strategy, here are key features you might want in your index:
Forward looking data
Anticipating corporate decarbonisation pathways through TPI Management Quality (“MQ”) and Carbon Performance (“CP”) scores. Analysis shows that the higher the TPI MQ score in 2019 the faster the rate of decarbonisation (scope 1&2) over the following 4 years.
Annualised average scope 1&2 decarbonisation (2019-2023) by 2019 TPI MQ Score
Balancing the climate risks, opportunities and transition efforts
FTSE TPI Climate indices balance parameters focused on carbon risk, such as fossil fuel reserves and carbon emissions intensity, parameters focused on climate opportunities, such as green revenues and parameters focused on transition efforts, such as TPI Management Quality and Carbon Performance.
Source: FTSE TPI Climate Transition Index Series. Past performance is no guarantee of future returns. Please see the end for important legal disclosures.
A transparent methodology
The FTSE TPI Climate Transition indices use a transparent tilting methodology, rather than an opaque black box optimisation process or active stock picking. They follow FTSE Global Factor Index Series transparent, rules-based methodology to address concerns about liquidity, capacity, diversification and turnover.
Focusing more at the company level than changing the industry exposure
FTSE All World TPI Climate Transition ex FF index has the lowest ICB Industry active share of the main families of Global FTSE SI indices. It thus focuses on tilting towards the better climate performing companies rather than on broad industry characteristics. It also reduces the risk of underperformance from industry dispersion.
ICB Industry Active Share[1] for selected SI indices[2]
Volatility that’s as close to the market as possible
FTSE All World TPI Climate Transition ex FF index has the lowest 5 year tracking error of the main families of Global FTSE SI indices and the closet 5-year return/risk to the FTSE All World.
5yr tracking error[3] for selected SI indices
5yr return/risk[4] for selected SI indices
Delivers a broad base of improvements in SI metrics
Rather than just concentrating on improving a single SI metric, such as ESG score, the FTSE TPI Climate Transition indices improve multiple SI metrics, carbon intensity, green revenues, TPI Management Quality and ESG scores, with minimal tracking error. The best improvements are in Emerging Markets, albeit with higher tracking error.
SI metric improvement for selected TPI indices
Cross asset class solutions
FTSE TPI Climate Transition indices offer investors the ability to tailor their sustainability approach across multi-asset portfolios. As well as offering multiple regional equity indices, with tailored exclusions, the series also includes climate transition solutions for corporate bonds and listed infrastructure.
FTSE Fixed Income TPI Index Series | LSEG
FTSE Russell Case Study - Integrating climate risk into listed infrastructure
Developed in conjunction with leading industry initiative and academic experts
The FTSE TPI Climate Transition indices use data developed in conjunction with the Transition Pathway Initiative, a global investor network of asset owners with 156 members and $80trn of AuM and the Grantham Research Institute of Climate Change and the Environment, part of the London School of Economics.
Home - Transition Pathway Initiative
Home - Grantham Research Institute on climate change and the environment
1. ICB Industry active share = sum of absolute value of Industry active weights, divided by two
2. Choice = FTSE Global All Cap Choice; TPI = FTSE All-World TPI Climate Transition ex Fossil Fuels Reserves; 4Good = FTSE4Good All-World; PAB = FTSE All-World Paris-Aligned (PAB); Env Ops = FTSE Environmental Opportunities All-Share; LowCarb = FTSE Developed ESG Low Carbon Target Exposure
3. Annualised tracking error vs parent benchmark based on 5 years of daily performance
4. Annualised 5 year return vs annualised 5 year volatility of monthly performance
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