On the go: Willis Towers Watson has teamed up with index provider Qontigo to launch the Stoxx Willis Towers Watson Climate Transition Indices, which they say will enable investors to address climate risks in their portfolios with a forward-looking evaluation of Paris-aligned equity valuations.
The CTI enable a more sophisticated way of managing climate risk, according to WTW, that looks beyond carbon emissions. The indices are comprised of forward-looking, bottom-up evaluations of transition risks and opportunities for each company.
The proprietary Climate Transition Value at Risk measure analyses the impact of moving from a business-as-usual approach to a world where emissions pathways are fully aligned to the goals of the Paris Agreement on projected company cash flows.
In addition to the launch of the index, the Asset Management Exchange, an affiliate of WTW, is rolling out a new Ucits global equity fund, which will track the Stoxx Willis Towers Watson World Climate Transition Index. WTW has partnered with EOS at Federated Hermes to deliver voting and engagement services for the strategy.
The fund, which will be available to defined benefit and defined contribution pension plans in multiple countries, is anticipated to receive $1bn (£730m) by the end of the year.
Craig Baker, WTW global chief investment officer, said investors “need a robust framework that can quantify and incorporate the financial impact of climate risk”, and added that the new products have not previously been “widely available until now”.
“We believe that understanding this transition, through our CTVaR, should be one of the biggest sources of alpha across all asset classes over the next few years,” he said.
“This new fund will be a valuable tool for pension plans to both reduce their climate risk and take advantage of the opportunities thrown up by a transition to a Paris-aligned world. Climate change is a systemic and urgent global challenge and also one that will significantly disrupt capital allocations and returns.”
David Nelson, WTW climate transition analytics senior director, added: “By curating data from multiple sources, the CTI take a unique approach by refreshing forward-looking company transition risk over time, rather than simply using historic carbon emissions data.
“While current climate metrics can help to identify outliers, many of the current approaches to factoring climate risk into investments tend to be simplistic and fall short of accurately identifying their impact on company valuations.”
