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Climate-conscious investing:

The Church of England's pension fund has created a new index that rewards companies according to how much they are doing to reduce their carbon emissions.

The FTSE TPI Climate Transition Index embeds forward-looking data which tracks whether companies align to 2DC or below 2DC/Net Zero. 

As such, it is the first Global Index to enable passive funds to capture company alignment to the 2015 Paris Climate Agreement.

It was designed by the Church of England Pensions Board with FTSE Russell, an index provider, and the Transition Pathway Initiative, based at the London School of Economics' Grantham Research Institute, and responds to the latest call by the Governor of the Bank of England, Mark Carney, challenging pension funds to address the financial risk of climate change.

The index uses a series of metrics to rate companies according to their environmental performance and rewards companies with public targets aligned to the Paris Agreement, while significantly underweighting or excluding those that do not.

The index methodology results in improvements in relation to climate relevant metrics:

  • Exposure to green revenues increases by 35%

  • Exposure to Fossil Fuel Reserves is reduced by 69%

  • Exposure to operational CO2 emissions is reduced by 36%

The Church of England Pensions Board is transferring £600 million of its £2.8 billion assets to the FTSE TPI Climate Transition Index. This means the Pensions Board portfolio will now have a 49.1% lower carbon intensity than its current passive allocation.

Two oil companies are included on the index: Royal Dutch Shell and Repsol, both of which have announced ambitious targets for reducing their carbon emissions.

Adam Matthews, the Church of England Pensions Board’s director of ethics and engagement and a prominent activist on climate matters, has worked with companies like Shell to set targets for reducing emissions.

Companies face a choice to put 'in place targets and strategies aligned to Paris' or 'work against the long-term interests of beneficiaries and wider society and be excluded', he said in a statement.

The Archbishop of Canterbury Justin Welby said: 'We all have both a moral and financial responsibility to address the climate emergency and to use those tools available to us to support the goals of the Paris Climate Agreement. 

'For Christians and people of conscience, this is even more so when you see the impacts on the world’s poorest and least equipped to adapt to extreme weather, as well as the impacts on the beauty of God’s creation.'

The Church of England has been working on this project for 18 months along with the Transition Pathway Initiative, a global initiative led by asset owners and supported by asset managers. Aimed at investors and free to use, the TPI assess how individual companies are positioning themselves for the transition to a low-carbon economy through a public, transparent online tool.  The TPI is backed by 62 funds with more than US$18 trillion of combined assets under management or assets under advice.


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