Robeco has introduced three new climate indices for equities that include forward-looking climate metrics, a move intended to cater to “a broad base of investors at different stages of their climate-investing journey,” according to the Dutch asset manager.
The new climate index suite is comprised of the Robeco Developed Low-Carbon Climate Leaders Tilt Equities Index, the Robeco Developed Paris-Aligned Climate Leaders Tilt Equities Index and the Robeco Developed Climate Leaders Equities Index.
According to Lucian Peppelenbos, climate strategist at Robeco, investors are “increasingly seeking sophisticated climate indices that go beyond reducing backward-looking carbon emissions and incorporate forward-looking, multi-dimensional climate metrics”.
“We decided years ago to not only focus on carbon emissions data when looking at climate investing,” he added.
“So we invested in resources to also evaluate other climate characteristics of companies such as their alignment with the Paris Agreement, whether companies provide solutions to lower the world’s future emissions and their level of climate transition risk.”
Alternative to passive
The Robeco Developed Low-Carbon Climate Leaders Tilt Equities Index offers a low-tracking error alternative to a passive market-cap weighted index with about 1000 constituents, making it “suitable for climate-conscious investors aiming to mitigate climate risk and support companies aligned with the Paris Agreement,” according to Peppelenbos.
Paris Alignment is not a requirement for inclusion in this index, however, although it is for the second index, the Robeco Developed Paris-Aligned Climate Leaders Tilt Equities Index.
This has around 500 constituents and a tracking error of 2%. It “targets investors who want to meet the minimum requirements for EU Paris-Aligned Benchmarks, but are keen to integrate more forward-looking climate metrics and want more exposure to climate solutions providers,” said Peppelenbos.
The other index, the Robeco Developed Climate Leaders Equities Index, comes close to an actively managed index with only 50 constituents and a tracking error of more than 5%. It focuses on companies that Robeco has identified as “solution providers expected to lead the transition to a low-carbon economy,” and has a higher turnover of 15%.
While there is expected to be significant overlap between the first two indices, the climate leaders index has no carbon footprint reduction target and could therefore deviate materially from the other two.
“This index focuses purely on climate leaders. Some climate leaders might actually have high current emissions, but they are expected to contribute positively to the transition,” a spokesperson for Robeco said.
The spokesperson added that Robeco was not planning to launch investment funds tied to the new indices.
“Most of our pension fund clients are looking for bespoke indices and will consider this index family a starting point,” she said. “Together with the pension fund in question, we would then develop a bespoke index on climate and other sustainability goals. This new index will then be tracked by the fund’s preferred index replication manager.”
Joop Huij, head of Robeco Indices, said the new index family offered investors “a more nuanced approach” to climate index investing, and that Robeco’s index construction approach took turnover and liquidity into account.
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