This paper profiles the FTSE Fixed Income EU Climate Benchmark Index Series, a set of corporate bond benchmarks, designed to capture the goals of the 2015 Paris Climate Agreement and support the transition to a lower-carbon economy.
We provide an overview of the European Union’s regulatory framework for Paris-aligned and Climate Transition Benchmarks, before interpreting its implications for fixed income application. Following this, we note the distinct design characteristics and challenges that arise when comparing fixed income versus equity Paris-aligned benchmarks.
We then explore some of the challenges in building climate benchmarks in fixed income, with a particular focus on the underlying data and its reliability, complexity in index calculation and the need for flexibility in design due to the ever-evolving needs of investors in this space.
Finally, we outline the design approach of the FTSE Fixed Income EU Climate Benchmark Index Series, which serves as a configurable solution that addresses many of the challenges in this area.