Willis Towers Watson launches climate transition index

By Christine Dawson

Willis Towers Watson and Qontigo have launched climate transition indices to assist investors in quantifying the impact of a Paris-aligned climate transition on equity valuations.

STOXX Willis Towers Watson Climate Transition Indices (CTI) is designed to help investors, governments and companies manage risk and capture opportunities in their portfolios. It can also help with aligning portfolios with the Paris Agreement and net zero targets.

Additionally, Asset Management Exchange (AMX), an affiliate of Willis Towers Watson, is launching a UCITS fund that will track the CTI. Stewardship provider EOS at Federated Hermes will deliver voting and engagement services for the fund.

Index and analytics provider, Qontigo, and advisory firm and investment consultant, Willis Towers Watson, said the product uses a forwards-looking, bottom-up evaluation of transition risk and opportunity on a company by company basis.

The firm describes this as the Climate Transition Value at Risk (CTVaR) measure and said it analyses the impact of aligning with the Paris Agreement on projected company cashflows. It is intended to allow transparent and low-cost allocation towards firms contributing to and benefiting from a green transition.

The fund will be available to DB and DC pension plans in multiple countries.

Craig Baker, Willis Towers Watson global chief investment officer, 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 CTVaR 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.”

David Nelson, climate transition analytics senior director at Willis Towers Watson, said the CTI approach was unique: “By curating data from multiple sources, the CTI takes 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.