FTSE Russell has announced the launch of two new indices – the FTSE Fixed Income TPI Climate Transition Index Series and the FTSE Fixed Income TPI Focused Glidepath Index Series.
The firm writes that the new indices will help meet the growing demand of investors and offer a fixed income solution to support their climate commitments.
The FTSE Fixed Income TPI Climate Transition Index Series will capture a broad range of sustainable investment data and provide a multi-asset TPI opportunity through a methodology aligned with the equity version of the TPI Index, the firm says.
The index series is designed to reflect the performance of global and regional fixed income markets, where index constituent weights are varied to account for the risks and opportunities associated with the transition to a low-carbon economy. Constituent weights are adjusted based on five key climate considerations through a fixed-tilt framework:
Carbon emissions
Green revenues
Green bonds
TPI inputs that provide a forward-looking view on company alignment with the goals of the Paris agreement via:
Management quality (MQ) scores: reflecting companies’ climate governance activities (aligned with the Taskforce on Climate-related Financial Disclosures’ recommendations)
Carbon performance (CP) scores: reflecting company commitments to emissions pathways that are aligned to the Paris Agreement and 1.5°C/below 2°C warming scenarios
The FTSE Fixed Income TPI Focused Glidepath Index Series is a long-only investment selection index aimed at achieving low tracking error through a re-financing approach. The index is designed with fixed income characteristics in mind, specifically seeking to utilise a buy and hold-to-maturity strategy for corporate bonds. The use of proceeds from matured bonds are then directed into those high carbon intensive corporates that are assessed to be Paris aligned by 2050 using the TPI Carbon Performance data. Over time, directing capital flows to corporates’ helping the transition to a low carbon economy. The firm writes that the benefits to this strategy include:
Transparent, rules-based strategy that is benchmark aware
Delivers enhanced liquidity profile by only choosing to invest in the primary market
Provides the opportunity for engagement with issuers as part of the roadshow and book-build
Offers a relative decarbonisation compared to the parent index overtime
Scott Harman, Head of Fixed Income, Currencies and Commodities at FTSE Russell, comments: “FTSE Russell climate indices have evolved to meet the increasing sophistication of sustainable investors. We have seen growing demand from investors for indices that go beyond a narrow focus on carbon emissions and allow investors to integrate company activity within the green economy and leverage forward looking metrics, whilst minimising tracking error from the base index. By bringing together data and analysis from both FTSE Russell and TPI, these new index series’ will offer investors solutions to support their climate commitments by mitigating carbon risk, capturing green revenues and incorporating forward-looking metrics.”
