Willis Towers Watson (WTW) and German analytics specialist Qontigo have launched a series of climate transition indexes.
The STOXX Willis Towers Watson Climate Transition Indices (CTI) are designed to help investors, governments and companies to manage risk, capture opportunities in their portfolios, and align with the goals of the Paris agreement and work towards Net Zero targets.
A proprietary Climate Transition Value at Risk (CTVaR) measure analyses 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 agreement.
By incorporating climate risk explicitly, both parties claim that this innovative approach allows investors to allocate towards firms that will build a future global economy that values and manages climate risks.
In addition to the launch of the index, AMX, an affiliate of WTW, is launching a UCITS fund, which will track the STOXX WTW World Climate Transition Index.
WTW has partnered with EOS at Federated Hermes, to deliver voting and engagement services for the fund, which is anticipated to receive in the region of $1 billion by the end of 2021.
Craig Baker, WTW’s global CIO, said: “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.”
“We believe that understanding this transition, through our CTVaR, should be one of the biggest sources of alpha across all asset classes over the next few years. 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. Climate change is a systemic and urgent global challenge and also one that will significantly disrupt capital allocations and returns.”
Neal Pawar, CIO at Qontigo added: “Understanding and addressing climate transition risk is essential to investment decisions today. Together with WTW, we leveraged our open architecture to translate the Willis Towers Watson CTVaR model into a transparent, systematic index solution.”