World’s first green government bond index

The first government bond index to adjust index weights based on each country’s preparedness and resilience to climate change risk has been launched by FTSE Russell.

The FTSE Climate Risk-Adjusted World Government Bond Index (catchily shortened to Climate WGBI) is derived from the FTSE World Government Bond Index, a benchmark of investment-grade sovereign bonds of 22 developed economies.

The index incorporates a forward-looking assessment of the climate risks sovereigns face and tilts towards government markets that, on a relative basis, demonstrate a greater degree of resilience and preparedness to the risks of climate change.

Using climate risk modelling developed by Beyond Ratings, an ESG analytics provider, this is the first time that a quantitative measure of climate risk has been applied to sovereign debt. The higher the index-weighted climate score, the lower the climate risk exposure. The objective of the index is to reduce climate risk compared to the standard FTSE World Government Bond Index (WGBI) while minimising tracking error.

Each country is assessed by three core climate risk pillars: Transition, physical risk and Resilience.

Waqas Samad, group director of information services, LSEG 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.”

    Share Story:

Recent Stories