The Church of England Pensions Board, London, selected FTSE TPI Climate Transition index for its £600 million ($783.9 million) passive global equity portfolio, which is managed by Legal & General Investment Management, a spokesman said Thursday in a telephone interview.
The £2.8 billion fund dropped the MSCI World index, maintained by index provider and analytics firm MSCI, as the underlying benchmark for its passive portfolio, the spokesman added.
Under the new FTSE Russell index, the fund's portfolio will have 49.1% lower carbon intensity than its current passive allocation, the Church of England Pensions Board said in a news release Thursday.
The new index is aimed at improving the fund's exposure to green revenues of its portfolio companies by 35% as well as reducing the fund's portfolio exposure to fossil fuel reserves by 69% and reducing portfolio companies' operational carbon dioxide emissions by 36%.
The fund will exclude ExxonMobil, Chevron and BP from its passive portfolio until the energy companies align their carbon emissions and strategies with the 2015 Paris Agreement's target of keeping the global temperature below 2 degrees Celsius.
Noting a scarcity of indexes compatible with fund's climate strategy, the spokesman said the Church of England Pensions Board developed the new benchmark with FTSE Russell in collaboration with the Transition Pathway Initiative. The initiative is aimed at tracking progress of how companies align with the Paris Agreement in efforts to lead to a net zero carbon economy. It is backed by 60 asset owners globally with over $18 trillion in combined assets.
"Working over the past 18 months we have developed an answer that enables passive investors to play their part in supporting the goals of the Paris Agreement," saud Adam Matthews, director of ethics and engagement for the Church of England Pensions Board and co-chair of the Transition Pathway Initiative, in the news release. "The message is clear to all publicly listed companies: Put in place targets and strategies aligned to (the Paris Agreement) and be rewarded with inclusion in the index, or work against the long-term interests of beneficiaries and wider society and be excluded."
Mr. Matthews noted that the fund will no longer be invested in several large oil companies but the companies can transition in line with the Paris Agreement and "claim their place in the index at a later date."
In a similar move in 2018, the £9 billion Merseyside Pension Fund, Liverpool, England, selected FTSE Russell's Smart Sustainability index as the benchmark for a portion of its passive equity portfolio focused on climate risk. The index is used for a third of the pension fund's £1 billion passive equity portfolio.