Introduction: An opportunity for the investment community to accelerate the path to a low-carbon economy.

An opportunity for the investment community to accelerate the path to a low-carbon economy.

Bloomberg Indices has launched a new suite of Paris-Aligned Indices, combining expertise from teams across Bloomberg, including Bloomberg Sustainable Finance Solutions and Bloomberg Enterprise Data. The index family provides efficient access to investments that foster the transition to a low-carbon economy and includes comprehensive exposure to equity and fixed income universes, all of which can be customized.

The emergence of Paris-Aligned Benchmarks

Paris-Aligned Benchmarks (PAB) were first introduced in 2019 as tools to accompany the transition to a low-carbon economy by the Technical Expert Group of the European Commission (TEG). They are a group of indices aiming to reallocate capital toward a low-carbon and climate-resilient global economy. In essence, PABs help to increase transparency on investors’ alignment with meeting the ambitious climate scenarios and the rate of decarbonization needed to stay in line with the Paris Agreement.

The Regulatory Standards for Paris-Aligned Benchmarks further the approach. They aim to be forward looking through a cutting-edge, climate-based analysis aligned to the Intergovernmental Panel on Climate Change's (IPCC) 1.5°C scenario. This robust framework offers investors looking to fulfill climate ambitions the opportunity to be at the forefront of the transition to a low-carbon economy. 

Bloomberg offers licensing of the Bloomberg Paris-Aligned Indices for your index applications, including the following:

• For reference benchmarks for ESG and climate risk-aware focused active funds
• To serve as the basis for passive index-based strategies, including index funds, ETFs, structured products or derivatives
• For allocation and policy benchmark statements for portfolio construction

Explore the following sections to understand Bloomberg’s approach to aligning with the Paris Agreement for climate change.

 

Key Features of Bloomberg’s Climate Benchmarks

Bloomberg Paris-Aligned Indices methodology >> 

The Bloomberg Paris-Aligned Indices seek to provide exposure to public equities and corporate bonds while complying with the Delegated Acts. They also aim to align with the Paris Agreement and incorporate recommendations from the EU TEG Final Report on Climate Benchmarks and Benchmarks’ ESG Disclosures.

Align to net-zero pathways >>

Climate mitigation will require deep emissions cuts across sectors, phasing out old carbon-intensive solutions while creating new low-carbon value chains. The PAB trajectory is a simple to understand decarbonization pathway that can serve as a benchmark for investors to meet or beat.

Precautionary principle & GHG emissions estimates >>

The precautionary principle says, “If in doubt, err on the side of the planet and the environment.” The Bloomberg Paris-Aligned Indices apply the precautionary principle in design and index construction.

Target setting >>

Corporations utilize target setting to signal their readiness for a low-carbon economy and their resilience to climate risks. Science-based targets (SBTs) allow the private sector to play a measurable role in the pathway to reducing greenhouse gas emissions (GHG). By overweighting companies with verified 1.5°C SBTs, portfolios are more likely to self-decarbonize, potentially enhancing their ability to meet the PAB's 7% per annum reduction.

Do no significant harm >>

EU regulators introduced the principle of "do no significant harm" (DNSH) to prevent myopic investment processes that focus on a particular objective, such as climate, from having unintended side effects in other areas, such as good water, waste and biodiversity management and social equity. To claim alignment with the EU Taxonomy, economic activities need to substantially contribute to one of six environmental objectives, and not significantly harm any other objective as defined in the EU Taxonomy Regulation.

Broad market beta >>

Current cap-weighted benchmarks are consistent with a 3.3°C warming climate scenario, and are not aligned with the Paris Agreement. Bloomberg's Paris-Aligned Indices are designed to represent beta for net-zero economies.

Fiduciary duty >>

The Bloomberg Paris-Aligned Indices offer market-like performance, investment capacity, market representation and modest turnover - all traditional elements of fiduciary responsibility - in addition to aligning to net-zero objectives.