FTSE Climate Risk-Adjusted Government Bond Index Series

The FTSE Climate Risk-Adjusted Government Bond Index Series supports global fixed income investors to quantitatively incorporate climate considerations into government bond portfolios.

The index series measures the performance of fixed-rate, local currency, investment-grade sovereign bonds in the FTSE World Government Bond Index (WGBI) or FTSE EMU Government Bond Index (EGBI) incorporating a tilting methodology that adjusts index weights according to each countries’ relative climate risk performance.

The country climate scores are derived by assessing each countries’ relative climate risk across three core climate change pillars (each with multiple sub-indicators):

  • Transition risk represents the level of climate related risk exposure of the country’s economy as measured by the distance to reach the modeled emissions needed to meet a 2 degree alignment
  • Physical risk represents the level of climate related risk exposure to the country and its economy from the physical effects of climate change
  • Resilience risk represents a country’s preparedness and actions to cope with its level of climate related risk exposure

Countries are scored across each of the pillars with a single combined score derived for each country. Country scores are then used to reweight the country’s exposure in the index to provide higher exposures to countries that are more resilient to climate change risks and lower exposures to countries that are more exposed to climate change risks.

There are a range of government bond indexes available depending on whether the objective is to have an index with a low tracking error to the parent benchmark, or to have an index with greater exposure to countries leading in the climate transition. The ‘advanced’ versions of the indexes are constructed with a stronger tilt to the Transition pillar, therefore offer greater exposure to countries with a stronger alignment to the 2 degree pathways.

The series comprises:

  • FTSE Climate Risk-Adjusted World Government Bond Index (Climate WGBI)
  • FTSE Advanced Climate Risk-Adjusted World Government Bond Index (Advanced Climate WGBI)
  • FTSE Climate Risk-Adjusted EMU Government Bond Index (Climate EGBI)
  • FTSE Advanced Climate Risk-Adjusted EMU Government Bond Index (Advanced Climate EGBI)

Index rules should be read in conjunction with supportingFTSE Russell noticesThese notices advise of advance changes in index methodology, which may not be reflected in index rules until the change effective date. The notices may also communicate revisions in index treatment in the period up to a rule change.