Brunel Pension Partnership and FTSE Russell have collaborated on the development of a suite of climate-themed equity benchmarks aligned with the Paris Agreement, launched today.
Brunel, one of the UK’s eight public sector pension asset pools, is planning to use one of the new benchmarks for a passive equity fund for its pension fund clients.
“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,” wrote Faith Ward, chief responsible investment officer at Brunel, in a blog post on the provider’s website.
“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.”
Ward, who is also the chair of the Institutional Investors Group on Climate Change (IIGCC), has previously described benchmarks as being “fundamentally flawed when it comes to climate”.
Having Paris-aligned indices to support product design, risk tools, and benchmarks was central to Brunel’s climate policy.
According to Aled Jones, head of sustainable investment, EMEA, FTSE Russell, Brunel’s being consulted on 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,” he added.
Jones also said that in addition to the passive equity fund plans, Brunel was shifting performance benchmarks for its suite of actively managed funds.
The framework underlying the benchmarks applies a tilt exposure, according to exposure objectives such as fossil fuel reserves, carbon reserves, green revenues, and, according to Brunel, forward-looking alignment with Paris goals.
The methodology for the new index series meets the minimum requirements of the EU’s Paris-Aligned Benchmarks by achieving a 50% reduction in carbon emissions over a 10-year period. It also integrates the Transition Pathway Initiative’s analysis of companies’ preparedness for the transition to a low-carbon economy.
David Cox, lead of listed markets at Brunel, was Brunel’s lead on the benchmarks project.
“The broader Brunel Pension Partnership has set out major ambitions on climate investing but also on encouraging wider industry change,” he said.
“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.”
He added: “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.”