Willis Towers Watson has teamed up with Qontigo to launch a family of climate transition indices.
The STOXX Willis Towers Watson Climate Transition Indices aim to help investors, governments and companies to manage risk, capture opportunities in their portfolios, align with the goals of the Paris Agreement and work towards net-zero targets.
In addition to the launch of the index, AMX (Asset Management Exchange), which is part of Willis Towers Watson, is launching a UCITS fund which will track the STOXX Willis Towers Watson World Climate Transition Index. Willis Towers Watson has partnered with EOS at Federated Hermes to deliver voting and engagement services for this fund.
The fund, which will be available to defined benefit and defined contribution pension plans in multiple countries, is anticipated to receive in the region of $1bn (£730m) by the end of 2021.
Willis Towers Watson global chief investment officer Craig Baker said: "Investors need a robust framework that can quantify and incorporate the financial impact of climate risk, but this is something that just hasn't been widely available until now. We believe that understanding this transition, through our climate transition value at risk methodology, should be one of the biggest sources of alpha across all asset classes over the next few years.
"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."
Willis Towers Watson climate transition analytics senior director David Nelson explained: "By curating data from multiple sources, the indices take a unique approach by refreshing forward-looking company transition risk over time rather than simply using historic carbon emissions data. Whilst 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."
Qontigo chief index product officer Stephan Flaegel added: "Understanding and addressing climate transition risk is essential to investment decisions today. Together with Willis Towers Watson, we took a collaborative approach to bring an innovative solution to market, translating the Willis Towers Watson CTVaR model into a transparent, rules-based index solution."