Backed by evidence from the UN Intergovernmental Panel on Climate Change (IPCC), ambition has grown to limit global temperature rise to 1.5°C since pre-industrial levels, reaching net zero by 2050. Currently, 70% of global CO2 emissions are covered by net zero targets (IEA, 2021).
To date, climate-conscious investors have largely focused on reducing relative portfolio carbon exposure; however, a combination of new forward-looking datasets and index innovation is emerging. Investors now have the choice to align with a scenario that may mitigate the most catastrophic impacts. The European Union (EU) has defined minimum standards for the EU Climate-Transition Benchmarks (CTB) and EU Paris-aligned Benchmarks (PAB), both of which are absolutely 1.5°C and 2050 net zero compatible. Our S&P PACT Indices offer a sophisticated, but accessible, solution for investment product providers to incorporate these standards and further climate objectives, which will support investors to:
- Implement the objectives of the Paris Agreement and align investments with a 1.5°C trajectory toward achieving net zero emissions by 2050;
- Adopt a strategy intended to meet the minimum standards for EU CTBs and EU PABs and recommendations from the Task Force on Climate-related Financial Disclosures (TCFD)—accounting for the physical risks, transition risks, and opportunities arising from climate change; and
- Address other climate objectives in an efficient manner, while staying as close to the underlying index as possible with broad, diversified exposure.
This paper underscores how the S&P PACT Indices could help investment product providers transition to a 1.5°C world and achieve other climate objectives, utilizing an accessible index construction.
