Qontigo and Willis Towers Watson (WTW) have launched a series of indices designed to quantify the impact on equity valuations of a transition aligned with delivery of the Paris Agreement goals.
Asset Management Exchange (AMX), an affiliate of WTW, is launching a UCITS global equity fund tracking one of the indices.
The consultancy has said it is anticipating there will be more than $1bn (€865m) in the fund by the end of the year – assuming the fund is able to be launched in November – “as much of the early assets will be coming from our discretionary delegated assets in both the DB and DC space”.
According to WTW, the STOXX Climate Transition Indices (CTI) enable a more sophisticated way of managing climate risk by looking beyond carbon emissions to make a forward-looking, bottom-up evaluation of transition risk and opportunity for each company.
This is based on analysis of the impact on projected company cashflows of moving from a ‘business as usual’ scenario – reflecting current policies – to a world where emissions pathways are fully aligned to the goals of the Paris accord.
WTW has partnered with EOS at Federated Hermes to deliver voting and engagement services for the AMX fund.
It described the new indices as “a major market innovation” for the COP26 private finance agenda.
“Investors need a robust framework that can quantify and incorporate the financial impact of climate risk, but this is something that just hasn’t been widely available until now,” said Craig Baker, WTW’s global CIO.
“We believe that understanding this transition, through our Climate Transition Value at Risk methodology, should be one of the biggest sources of alpha across all asset classes over the next few years.”
He added: “This new fund will be a valuable tool for pension plans to both reduce their climate risk and take advantage of the opportunities thrown up by a transition to a Paris-aligned world.”
David Nelson, climate transition analytics senior director at WTW, said that by curating data from multiple sources, the CTI took a unique approach by refreshing forward-looking company transition risk over time rather than simply using historic carbon emissions data.
“Whilst current climate metrics can help to identify outliers, many of the current approaches to factoring climate risk into investments tend to be simplistic and fall short of accurately identifying their impact on company valuations,” he said.