As investors’ understanding of the risks and opportunities arising from climate change has grown in sophistication, so too have investor approaches to capturing these aspects of climate change in their portfolios. These evolutionary steps have seen the market develop from relatively simple risk-based implementation options – such as creating "ex fossil fuel" or "low carbon" portfolios – to approaches that also capture the potential upside from the transition to a low carbon economy, e.g. via increased exposure to the global green economy.
Up to now, the missing piece has been a robust, data driven approach to capturing the forward-looking aspects of corporate efforts to adjust their businesses for the climate transition.
The FTSE Developed ex-Korea TPI Climate Transition Index (“FTSE TPI Climate Transition Index”) combines FTSE Russell’s expertise in climate data and sustainable investment index design with the Transition Pathway Initiative’s (TPI) analysis of how the world’s largest and most carbon exposed / intensive public companies are managing the climate transition.
The result is an index series that captures the risks and opportunities arising from the climate transition while also adjusting exposure to companies based on their TCFD-aligned climate governance and commitments to 2DC carbon emission pathways. This is achieved by adjusting company weights based on five criteria: