The FTSE Climate Risk-Adjusted World Inflation-Linked Securities Index Series is designed to mitigate against climate change related risks for the sovereign inflation-linked bond asset class.
The FTSE Climate Risk-Adjusted World Inflation-Linked Securities Index (FTSE Climate WorldILSI) measures the performance of inflation-linked fixed-rate, local currency, investment-grade sovereign bonds in the FTSE World Inflation-Linked Securities Index (FTSE WorldILSI) incorporating a tilting methodology that adjusts index weights according to each country’s relative exposure to climate risk, with respect to resilience and preparedness to the risks of climate change.
The country climate scores are derived by assessing each country’s relative climate risk across three core climate change pillars (each with multiple sub-indicators):
Transition risk represents the level of climate related risk exposure of the country’s economy as measured by the distance to reach the modeled emissions needed to meet a 2 degree alignment
Physical risk represents the level of climate related risk exposure to the country and its economy from the physical effects of climate change
Resilience represents a country’s preparedness and actions to cope with its level of climate related risk exposure
Countries are scored across each of the pillars with a single combined score derived for each country. Country scores are then used to reweight the country’s exposure in the index to provide higher exposures to countries that are more resilient to climate change risks and lower exposures to countries that are more exposed to climate change risks.
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