The Institutional Investors Group on Climate Change (IIGCC) has issued a set of five principles to evaluate and enhance the quality of net zero benchmarks, having formed a working group that engaged with prominent providers, including Bloomberg, FTSE Russell, MSCI, and S&P Global. The group aimed to make net zero alignment with the Paris goals an attainable objective for a wider range of market participants, while also considering EU regulation. The working group concluded that progress has been made at different paces across asset classes, with equities being the most advanced. However, more work is needed regarding fixed income net zero benchmarks, particularly for sovereign bonds, which have proven to be a challenge for benchmark innovation due to limited integration into net zero investment strategies. While the EU climate benchmarks regulation is seen as a step in the right direction, the working group believes it falls short as benchmarks implementing the regulation tend to comply with emission reduction targets through capital reallocation, rather than promoting actual emissions reductions. The working group’s recommendations aim to promote best practices and encourage benchmarks that drive real-world emissions reductions. Its five key principles include: prioritising real-world emissions reductions; ensuring transparency of benchmark rules and their consequences; incorporating a sectoral and regional based approach; prioritising publicly available data and integrating alternative alignment metrics; and facilitating engagement to improve issuer behaviour.
How can index benchmarks better align with net zero? 📈🌍
30 investors assessed the market and impact of EU regulations in our latest report. Eight index providers presented their offerings, too. 💡
The result? Five principles to improve the quality of net zero benchmarks. ⤵
— IIGCC (@IIGCCnews) May 23, 2023