Climate Action

Targeted sustainability

More than ever, investors recognize the risks and opportunities associated with the low carbon transition and are incorporating a wider set of considerations, including carbon, green revenues and ESG assessments into their decision making.

  • 24 June 2020
  • FTSE Russell Research

More than ever, investors recognize the risks and opportunities associated with the low carbon transition and are incorporating a wider set of considerations, including carbon, green revenues and ESG assessments into their decision making.

It is no longer sufficient to merely improve upon a set of sustainable investment (SI) characteristics compared to a benchmark, but rather that those improvements should achieve precise outcomes. Moreover, the desire to simultaneously control other index outcomes, such as tracking error, country/ industry weights and style exposures, provides additional complications. The ability to achieve such specific requirements in an index ultimately rests with portfolio construction.

FTSE Russell research shows how:

  • Multiple SI objectives can be incorporated in an index in a transparent and flexible manner
  • Increasing demand for index solutions that incorporate precise low carbon and ESG outcomes can be achieved with the Target Exposure methodology, an evolution of FTSE Russell’s tilting methodology
  • Precisely targeted SI solutions can also be designed for ease of implementation and limited levels of tracking error

To read the full research paper click here.


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