Index provider FTSE Russell launched the FTSE Climate Risk-Adjusted European Monetary Union Government Bond index.
It is the first government bond index to adjust country weights based solely on the climate risk of EMU countries, according to a news release Thursday. EMU countries are those within the European Union that have adopted the euro as their legal currency.
FTSE Russell developed the index using climate scores from London Stock Exchange Group's environmental, social and governance analytics provider, Beyond Ratings.
It assesses each EMU country's climate risk across three categories: Transition risk, representing the climate-related risk exposure "as measured by the distance to reach the modeled emissions needed to meet a 2 degree alignment" called for in the Paris Agreement; physical risk, representing the risk of the physical effects of climate change; and resilience, measuring a country's level of preparedness.
"There is increasing awareness of how sovereign states are uniquely exposed to the risks of climate change," said Sylvain Chateau, co-founder and chief operating officer of Beyond Ratings, in the news release. "This has, in part, driven client demand for climate risk-adjusted fixed-income indexes since the launch of Climate WGBI (the FTSE Climate Risk-Adjusted World Government Bond index), particularly from European investors. With this launch, the Climate EGBI now offer European sovereign debt investors an efficient means to quantitatively assess and reduce climate risk and GHG (greenhouse gas) emissions in their portfolios."