Global index, data and analytics provider FTSE Russell has launched what it claims is the world’s first government bond index that offers a quantitative measure of risks posed by climate change.
The FTSE Climate Risk-Adjusted World Government Bond Index (Climate WGBI) is derived from the FTSE World Government Bond Index, which is a widely used benchmark of investment-grade sovereign bonds of 22 developed countries.
The index incorporates a forward-looking assessment of the climate risks countries face and tilts towards government markets that demonstrate a greater degree of resilience and preparedness to the risks of climate change.
It will be available to investors as a portfolio performance measurement tool as well as for the basis of an investment portfolio.
Using climate risk modelling developed by analytics provider Beyond Ratings, it is said to be the first time a quantitative measure of climate risk has been applied to sovereign debt.
Each country is assessed by three core climate risk pillars – transition risk, physical risk and resilience.
Waqas Samad, Group Director of Information Services at the London Stock Exchange Group, which owns FTSE Russell said: “Governments are at the forefront for catalysing and enabling the economic transition to a low carbon economy. The integration of economic and financial risk considerations linked to climate and sustainability into sovereign bond portfolios is still nascent. 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.”