Indexing firm FTSE Russell is launching a new index that incorporates climate change considerations into its government bond index.
The new FTSE Climate Risk-Adjusted World Government Bond Index is based on FTSE’s existing global government bond index that includes investment-grade sovereign bonds from 22 developed economies. Yet the new index weights each country based on its preparedness for and resilience to climate change risk.
Index components are weighted by climate risk scores based on modelling developed by environmental analytics firm Beyond Ratings.
“This is the first time that a quantitative measure of climate risk has been applied to sovereign debt,” FTSE Russell said.
“The index incorporates a forward-looking assessment of the climate risks sovereigns face and tilts towards government markets that, on a relative basis, demonstrate a greater degree of resilience and preparedness to the risks of climate change,” it noted.
The firm said that the new index allows investors in sovereign debt to incorporate climate change risk considerations into their portfolios.
“The launch of this index will allow the market, for the first time, to access a quantitative climate risk assessment for sovereign debt. Investors can now incorporate climate change risk considerations into their fixed income portfolios, and this could also inform their engagement with sovereigns,” said Waqas Samad, group director of information services at London Stock Exchange Group (LSEG), which owns FTSE Russell.