July 06, 2021

FTSE Russell launch suite of Paris-aligned climate benchmarks for global equity markets

  • FTSE Russell launches the ‘FTSE EU Climate Benchmarks Index Series’ a comprehensive range of climate-themed equity indexes aligned to the Paris Agreement
  • FTSE Russell consulted Brunel Pension Partnership, a major asset owner with more than £35bn in assets under management, on the design of the FTSE Paris-aligned Benchmark range

FTSE Russell, the global index, data and analytics provider, has launched the FTSE EU Climate Benchmarks Index Series, a suite of climate-themed equity indexes that are aligned to the goals of the Paris Agreement to keep global warming below two degrees Celsius by 2050. The index series cover a broad range of developed and emerging equity markets including FTSE All-World, FTSE Developed, FTSE Emerging, Russell 1000, FTSE All-Share and FTSE Australia 200.

The index series, which includes the FTSE Paris-aligned Benchmark (PAB) Indexes, leverages FTSE Russell’s expertise in climate data and index design in applying the FTSE Target Exposure Framework. The framework applies a transparent tilt exposure towards and away from index constituents according to several exposure objectives such as fossil fuel reserves, carbon reserves and green revenues to achieve Paris-alignment*.
The PAB index methodology meets the minimum requirements of the EU’s Paris-aligned Benchmarks by achieving 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. Moreover, the indexes are classified under article 9 of the EU’s SFDR legislation as financial products with ‘sustainable investment’ as the core objective. FTSE Russell also plans to launch a suite of equity indexes aligned to the EU Climate Transition Benchmark (CTB) criteria later in 2021.

Brunel Pension Partnership, one of eight Local Government Pension Scheme (LGPS) providers in the UK, has licensed a FTSE Russell PAB index to give its clients the opportunity to adopt it for their passively-managed fund in September 2021.

Brunel Pension Partnership was consulted on the construction of FTSE Russell’s new EU Climate Benchmarks Index Series. This included 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 – activities identified as lacking a ‘credible pathway towards global net zero emissions.’ FTSE Russell’s PAB and CTB indexes go further by applying index exclusions to companies that generate over 50% of revenues from these activities.

In addition, the indexes limit the active weight of banking sector constituents to no more than their underlying index weight – to reflect the sector’s funding role for large carbon emitters as a contributory factor to climate change, an impact not currently factored into current climate assessments.
The following indexes are set to go live in the coming weeks:

  • FTSE All-World Paris-aligned (PAB) Index
  • FTSE Developed Paris-aligned (PAB) Index
  • FTSE Developed Europe ex UK Paris-aligned (PAB) Index
  •  FTSE Developed ex Australia Paris-aligned (PAB) Index
  • FTSE Emerging Paris-aligned (PAB) Index
  • FTSE All-Share Paris-aligned (PAB) Index
  • FTSE Australia 200 Paris-aligned (PAB) Index
  • Russell 1000® Paris-aligned (PAB) Index

Aled Jones, Head of SI Product Management, EMEA, FTSE Russell comments:
“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. Brunel Pension Partnership, who we closely worked with in the development of these indices, now plans to utilise one of the new Paris-Aligned Benchmarks for a passive equity fund, while also shifting performance benchmarks for its considerable suite of actively managed funds. We congratulate them on sending a powerful signal of intent.”

David Cox, Head of Listed Markets, Brunel Pension Partnership, says:
“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.”

Faith Ward, Chief Responsible Investment Officer, Brunel Pension Partnership, says:
“Having Paris-aligned indices to support product design, risk tools and benchmarks was central to Brunel’s Climate Policy. Our work with the IIGCC to help launch the Net Zero Investment Framework and consulting FTSE Russell for its new Paris-aligned index series have been priority projects for Brunel. We hope these projects provide practical investor tools to reduce climate related financial risk and support the climate transition.”

To find out more about the FTSE EU Climate Benchmarks Index Series, please click here. To read ‘Brunel’s index path to net-zero investing’, a Q&A interview with Faith Ward, Chief Responsible Investment Officer at Brunel Pension Partnership and Aled Jones, Head of SI Product Management, EMEA at FTSE Russell, please click here.

*The table provides a summary of the FTSE EU Paris-aligned Benchmark Index methodology.

  • Fossil fuel reserves - underweight or exclude companies with fossil fuel reserves
  • Carbon emissions  - underweight companies according to their GHG emissions 
  • Green revenues - overweight companies engaged in the transition to a green economy as defined by FTSE Russell’s Green Revenues 2.0 data model 
  • TPI management quality - over or underweight companies according to their management quality of climate issues
  • TPI carbon performance - over or underweight companies according to their carbon performance
  • Net zero pathways - apply annual decarbonisation targets (7% average annual carbon emissions reduction relative to the index base year) to reach ‘net zero’ over 10 years 
  • Banking sector cap - disallow overweight vs market in short-term
Oliver Mann/Lucie Holloway
+44 (0)20 7797 1222

About FTSE Russell

FTSE Russell is a global index leader that provides innovative benchmarking, analytics and data solutions for investors worldwide. FTSE Russell calculates thousands of indexes that measure and benchmark markets and asset classes in more than 70 countries, covering 98% of the investable market globally. 

FTSE Russell index expertise and products are used extensively by institutional and retail investors globally. Approximately $16 trillion is currently benchmarked to FTSE Russell indexes. For over 30 years, leading asset owners, asset managers, ETF providers and investment banks have chosen FTSE Russell indexes to benchmark their investment performance and create ETFs, structured products and index-based derivatives. 

A core set of universal principles guides FTSE Russell index design and management: a transparent rules-based methodology is informed by independent committees of leading market participants. FTSE Russell is focused on applying the highest industry standards in index design and governance and embraces the IOSCO Principles. FTSE Russell is also focused on index innovation and customer partnerships as it seeks to enhance the breadth, depth and reach of its offering. 

FTSE Russell is wholly owned by London Stock Exchange Group. 

For more information, visit www.ftserussell.com.

© 2021 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”). The LSE Group includes (1) FTSE International Limited (“FTSE”), (2) Frank Russell Company (“Russell”), (3) FTSE Global Debt Capital Markets Inc. and FTSE Global Debt Capital Markets Limited (together, “FTSE Canada”), (4) FTSE Fixed Income Europe Limited (“FTSE FI Europe”), (5) FTSE Fixed Income LLC (“FTSE FI”), (6) The Yield Book Inc (“YB”) and (7) Beyond Ratings S.A.S. (“BR”). All rights reserved.

FTSE Russell® is a trading name of FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB and BR. “FTSE®”, “Russell®”, “FTSE Russell®”, “FTSE4Good®”, “ICB®”, “The Yield Book®”, “Beyond Ratings®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB or BR. FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.

All information is provided for information purposes only. All information and data contained in this publication is obtained by the LSE Group, from sources believed by it to be accurate and reliable. Because of the possibility of human and mechanical error as well as other factors, however, such information and data is provided "as is" without warranty of any kind. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell products, including but not limited to indexes, data and analytics, or the fitness or suitability of the FTSE Russell products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell products is provided for information purposes only and is not a reliable indicator of future performance.

No responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for (a) any loss or damage in whole or in part caused by, resulting from, or relating to any error (negligent or otherwise) or other circumstance involved in procuring, collecting, compiling, interpreting, analysing, editing, transcribing, transmitting, communicating or delivering any such information or data or from use of this document or links to this document or (b) any direct, indirect, special, consequential or incidental damages whatsoever, even if any member of the LSE Group is advised in advance of the possibility of such damages, resulting from the use of, or inability to use, such information.

No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset or whether such investment creates any legal or compliance risks for the investor. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset nor confirmation that any particular investor may lawfully buy, sell or hold the asset or an index containing the asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional.

Past performance is no guarantee of future results. Charts and graphs are provided for illustrative purposes only. Index returns shown may not represent the results of the actual trading of investable assets. Certain returns shown may reflect back-tested performance. All performance presented prior to the index inception date is back-tested performance. Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect when the index was officially launched. However, back-tested data may reflect the application of the index methodology with the benefit of hindsight, and the historic calculations of an index may change from month to month based on revisions to the underlying economic data used in the calculation of the index.

This document may contain forward-looking assessments. These are based upon a number of assumptions concerning future conditions that ultimately may prove to be inaccurate. Such forward-looking assessments are subject to risks and uncertainties and may be affected by various factors that may cause actual results to differ materially. No member of the LSE Group nor their licensors assume any duty to and do not undertake to update forward-looking assessments.

No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group data requires a licence from FTSE, Russell, FTSE Canada, FTSE FI, FTSE FI Europe, YB, BR and/or their respective licensors.