FTSE Russell, the global index, data and analytics provider, has announced plans to launch a climate and multi-factor index, the FTSE All-World Climate Balanced Comprehensive Factor Index in November 2018.
Merseyside Pension Fund (MPF) has selected the index to support the implementation of its Climate Risk Strategy within the Fund’s listed equity portfolio. The objective of MPF’s climate strategy is to align its Responsible Investment policy and activities with the goals of the 2015 Paris Agreement. As part of this, the Fund has considered options for capturing both the risks and opportunities arising from climate change. MPF is the fifth largest fund in the UK’s Local Government Pension Scheme with £9 billion of assets under management.
The new climate index will sit within FTSE Russell’s Smart Sustainability Index Series. This index series provides investors with the ability to integrate key aspects of climate risk and opportunity alongside multi-factor or smart beta exposure.
The index will provide broad exposure to the target equity universe (FTSE All-World® Index) and is constructed using FTSE Russell’s innovative and transparent multi-factor weighting methodology. It tilts constituent weights to provide increased but balanced exposures to low volatility, momentum, quality, size and value factors. Alongside this it also incorporates climate change considerations through three parameters; carbon efficiency, fossil fuel reserves and the green revenues of constituents, using FTSE Russell’s Green Revenues data model.
FTSE Russell is responding to a growing trend among asset owners to integrate sustainability and environmental, social and governance (ESG) considerations into their investment strategies and stewardship approach. Sustainable Investment benchmarks / indexes also support transparency and disclosure in the capital markets by providing a signal to companies regarding their performance on a range of sustainability and ESG issues.
Aled Jones, Head of Sustainable Investing, Europe, FTSE Russell:
We are delighted to be working with Merseyside Pension Fund to support its ambitious climate risk strategy. Combining a multi-factor approach with a focused set of sustainability parameters is a new and exciting approach for the integration of sustainability and ESG considerations into passive investment strategies. UK pension funds are actively engaging with companies on their ESG practices and the FTSE All-World Climate Balanced Comprehensive Factor Index will provide an additional powerful basis to increase corporate ESG transparency and performance.
Owen Thorne, Investment Manager, Merseyside Pension Fund:
We are pleased to have worked with FTSE Russell to produce a low carbon index solution that provides us with an investable, risk-efficient means of achieving our decarbonisation goals.
The FTSE All-World Climate Balanced Comprehensive Factor Index is part of FTSE Russell’s extensive Sustainable Investment index and data offering which includes the FTSE All-World ex CW Climate Balanced Factor Indexes, ESG Ratings and data model and Green Revenues data model.