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Transition to a 1.5°C World with the S&P Paris-Aligned & Climate Transition Indices How can indices help investors align with climate goals while maintaining broad exposure?
BY Mona Naqvi

The landmark Paris Agreement marked a sea change in the global fight against climate change. Backed by empirical evidence from the UN Intergovernmental Panel on Climate Change (IPCC), ambition has since grown to limit global temperature rise to 1.5°C since pre-industrial levels.

To date, climate-conscious investors have largely focused on reducing relative portfolio carbon exposure, but divergent methodologies have made fertile ground for so-called "greenwashing." While point-in-time analyses do not necessarily inform alignment with our needed transition to a low-carbon economy. However, a combination of groundbreaking new 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) is in the process of finalizing standards for defining a Climate-Transition Benchmark (CTB) and a Paris-aligned Benchmark (PAB), both of which use absolute measures to align with a 1.5°C trajectory rather than simply a relative carbon reduction. Our S&P PACT™: Paris-Aligned & Climate Transition Indices offer a powerful set of investment solutions to meet the proposed standards, in addition to other climate objectives. This new breed of sustainable climate indices therefore provides a pathway for investors to:

• Go beyond the Paris Agreement and align investments with a 1.5°C trajectory toward achieving net-zero emissions by 2050;

• Adopt a strategy compliant with the proposed standards for the EU CTBs and PABs and recommendations from the TCFD—accounting for the physical risks, transition risks, and opportunities arising from climate change; and

• Address numerous climate objectives efficiently, 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 investors transition to a 1.5℃ world and achieve other climate objectives.

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