Investors are restless when it comes to certain types of climate benchmarks. One challenge for Paris-aligned indices is the tracking error, which grows as the global economy resists decarbonisation efforts. Some asset owners are updating their approach to such indices, for example, because they feel they do not contribute enough to making the low-carbon energy transition happen.
As MSCI is about to overhaul its Climate Action Indexes Methodology, FTSE Russell last week announced a partnership to develop climate scenario-based indices. Stephanie Maier, head of sustainable at FTSE Russell, told IPE the initiative comes amid a “doubling down” by asset owners and asset managers on trying to understand how best to invest “for and through the climate transition” and that this has driven more of a focus on forward-looking metrics.
She said the partnership with Planetrics, part of consultancy SLR, on climate scenario-based indices will mean that FTSE Russell will be able to offer investors another approach to understanding which companies will be energy transition winners or losers. FTSE Russell already has a long-standing partnership with the Transition Pathway Initiative that underpins its climate transition indices.
In other sustainable finance-related news, there are plenty of EU regulatory developments to keep abreast of. The European Parliament has given a first glimpse into its negotiating position on SFDR, the bloc’s flagship anti-greenwashing legislation, and feedback to the Commission’s consultation on the Shareholder Rights Directive (SRD) shows there will be much to debate.
In the UK, meanwhile, uneven uptake of sustainable fund labels across asset classes under the Sustainability Disclosure Requirements (SDR) regime could limit pension scheme use of the labels, the country’s financial markets regulator has acknowledged.
Elsewhere, Dutch civil service scheme ABP recently revealed that its move to ESG-screened index investing fell short of return expectations.
Relatedly, two recent papers tackle the question of whether sustainable investing costs performance. One takes an efficient frontiers perspective, finding that over the long run, sustainable investing does not appear to compromise diversification. Another paper focuses on the trend towards concentrated portfolios among some institutional investors and warns that there is a real risk of missing out on the small number of companies account for most net wealth creation in equity markets.
Items to note:
- The IPE Real Assets Infrastructure & Natural Capital Global Conference & Awards 2026 will take place on 17-18 September at the Marriott Hotel City West in Munich.
Susanna Rust
ESG Editor
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