INSIGHT by IIGCC
How can index providers better align benchmarks with net zero? More than 30 investors share their findings in our latest report, which assesses the net zero offerings of eight leading index providers together with the impact of EU regulation. The result is five key principles to consider.
Many investors have committed to aligning their portfolios with a net zero target. Meanwhile, a significant and growing portion of capital invested in public markets is allocated to strategies that track or seek to outperform a net zero benchmark.
In 2019, the European Commission set out the criteria for an official EU Paris-Aligned Benchmark (PAB) or Climate Transition Benchmark (CTB), which complements Europe’s wider Sustainable Finance Disclosure Regulations (SFDR).
As a result, between Q1 2017 and April 2023, investment in net zero benchmarks increased from USD $10.2bn to USD $100bn, driven mostly by passive investment strategies in EU PAB and CTB electronically traded funds (ETFs).
Though a welcome signal, investors point out that the EU focus on emissions reductions poses unintended consequences – risking decarbonisation on paper rather than in the real world.
Our working group set out in June 2022 to assess the impact of current EU regulations and suggest ways to improve the next generation of net zero benchmarks. They also analysed the current market, inviting eight index providers to present their net zero offerings.
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