Brunel and FTSE Russell launch Paris-aligned benchmarks

Faith Ward
Chief Responsible Investment Officer
6th July 2021

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We are delighted to announce the launch of a new suite of climate benchmarks following extensive work with FTSE Russell in their development.

The launch will help us offer our clients the Net Zero-aligned portfolios they have asked for and provide a path forward for the wider industry. We placed great emphasis on developing indices that not only met current needs, but also have scope to evolve in response to rapid industry developments, so that we continue to deliver on our clients’ investment objectives. The project, led by David Cox, Brunel’s Head of Listed Markets, has drawn on the time and expertise of teams and individuals across the partnership.

“The broader Brunel Pension Partnership has set out major ambitions on climate investing but also on encouraging wider industry change,” says David Cox, Head of Listed Markets, Brunel Pension Partnership.

“This initiative with FTSE enables us to do both, providing a new way to ensure our passive funds are Paris-aligned, by actually being involved in the work of creating them. 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. Thank you to all our partners for making this possible.”

Addressing climate change as an investor is made all the harder by the relative lack of appropriate benchmarks. For investors seeking alignment with the ambitions of the Paris Agreement, which aims to limit global warming to two degrees above pre-industrial levels, the new benchmarks are an enormously important tool in making that ambition possible.

The new index series reflects both FTSE Russell’s expertise in index design and Brunel’s expertise in climate investing. The framework provides a tilt exposure. Exposure to any given index constituent rises or falls according to several exposure objectives, covering fossil fuel reserves, carbon reserves and green revenues, as well as forward-looking alignment with Paris goals.  The tilt is designed to ensure that the fund is on track to achieve Paris alignment.

The Paris-aligned Benchmark meets the minimum requirement of the EU’s Paris-aligned benchmarks by achieving a 50% reduction in carbon emissions over a ten-year period. It also integrates the Transition Pathway Initiative’s analysis of how the world’s largest and most carbon-exposed companies are managing the climate transition.

“Brunel Pension Partnership brings a huge amount of expertise in climate investing and were consulted on the construction of FTSE Russell’s new EU Climate Benchmarks Index Series,” said Aled Jones, Head of Sustainable Investment, EMEA, FTSE Russell. “This led to the inclusion of recently issued guidance from the IIGCC Net Zero Investment Framework to limit investor exposure to Thermal Coal and Oil Sands. Other features involved limiting the active weight of banking sector constituents to no more than their underlying index weight, a move that reflects the sector’s funding role for large carbon emitters as a contributory factor to climate change.”

There is now a major opportunity for the broader industry.

“The new indices provide the industry with fresh tools to implement the Paris Agreement,” said David Vickers, Chief Investment Officer at Brunel. “We call on investors to quickly make use of the benchmarks in their quest to support the climate transition.”

 

More details are available on the FTSE Russell website


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