BNP Paribas is set to announce the launch of an innovative new green index aimed at Australian institutional investors. The Australian Climate Transition Index (ACT Index) will be used as a return benchmark for an innovative new green bond being launched at the same time by BNPP. The BNP Paribas Green Bond has already been taken up by some of the leading responsible investors in Australia, including the Clean Energy Finance Corporation, First State Super and QBE.
The ACT Index is the result of an intensive 24-month collaboration between ISS ESG Australia, the Monash University-linked NGO ClimateWorks, and BNP. Monash’s Centre for Quantitative Finance and Investment Strategies were also involved in the development of the index, and numerous external stakeholders provided feedback on the structure of the offering.
With over 25 years’ experience, ISS ESG has a long-standing reputation for providing quality data and customizable ratings for the construction & maintenance of ESG indices. This flexibility enables collaboration with a range of different index providers in the global market.
The ACT Index seeks to identify companies likely to perform well in an economy undergoing a well below 2°C transition, and that will continue playing a part in the Australian economy in a net zero emissions future.
The project partners look at a company’s current climate-related exposures and its mitigation approach – both aspects are considered from a products and services perspective, and operational exposures and strategies are also considered.
Companies are identified as falling into one of the three following categories:
- Enablers: Companies selling products / services that are needed to support the transition towards the new economy
- Least Affected: Companies that are likely to be least affected; current production technologies/ services are compatible with the new environment
- Adaptors: Companies which operate in sectors likely to be affected by major changes but are well placed to adapt in the new economy
To arrive at the final index, the S&P ASX 300 is adjusted related to market capitalization and liquidity, and then custom data from ISS ESG’s specialist Sustainability Ratings product range is combined with forward-looking scenario analysis from ClimateWorks to filter the remaining companies. The final index comprises 100 of the companies in Australia judged to be best placed to manage the transition to a sub-2°C world.
The ACT Index is a new approach to managing portfolio carbon risk for asset owners and large-scale investors, and with its inherent scenario-based research processes, will appeal especially to those looking to deal with the implications of the Task Force on Climate-related Financial Disclosures (TCFD).
“We’re really excited about the dynamic nature of this product,” said Julia Leske, Head of ESG Australia and New Zealand. “Investors using the ACT Index will receive regular updates on progress, and the scenarios will be reviewed at least annually to ensure that they are on track.”
Marija Kramer, Head of ISS ESG said: “We are delighted to contribute to this innovative project by providing ISS ESG’s market-leading data and analysis, in the context of the dynamic climate transition scenarios, to determine the extent to which Australian companies are prepared to transition to a low carbon economy, and to the mitigation approach related to these transition risks and opportunities.”
By Julia Leske, Head of ESG Australia and New Zealand