How are investors using the TPI data in index design and passive investing?

The Church of England Pensions Board has been a pioneer in its commitment to address climate change as both a financial risk and societal issues. We provide insight into how the Pensions Board uses Transition Pathway Initiative (TPI) data and the FTSE TPI Climate Transition Index series.

Hello, my name is Solange.I'm joined by Laura today to talk about how investorsuse the TPI data intoindex construction and passive investing.Laura, thank you for being here.The Church of England Pension Boardshas been a pioneer in tacklingclimate change as a financial risk and a societal issue.In 2020, the pension Boards allocated fundsto track the FTSE TPI climate transition index,which supports the transition to a low carbon economy.Tell me, how does the pension Board utilizethe FTSE TPI climate transition indexand its underlying data.Thank you. And thank you so much for having me.So the reason that we usethe TPI FTSE climate transition index is because we believethat the response to climate change needs to besystemic and account forthe complexity of that transition.And the reason that we really likethe index and started using it back in2020 is because it's quiteunusual in that it incorporates forward looking data.And what I mean by that is it doesn'tjust look at how a company is managingclimate risk today and howtheir emissions profile plays out today.It also looks at a whole range of what wewould consider to be forward looking indicators.Things like how a company is managingthe governance of climate riskor how the board is thinking about it.But also critically, howa company is setting out its transition plan.So looking at things like emissions reduction targets.And what we want to see in our portfolio is to havea stronger representation ofcompanies that are really managingclimate risk well and thoughtfully on a sector level.And so that's really what the index allows us to do.So effectively, what we have is an index that'soverweighted with companies thatare managing that climate risk really,really well and thoughtfully for their sector,and it's underweighting companiesthat aren't managing it as well.Okay, and how does this approachsupport the pension board investment objectives?It's a good question. So there's a couple of ways.I would say one is we obviously have a Net Zero 2050 target.We also have a climate action plan.So part of our target is to reduce,financed emissions over time, sothis really helps support that.And we've been able to exceed our yearon year financed emissions targets based onthe target that we've set forour public equity portfolio through using the index.Second part is, we're really focused on stewardship.We really believe that the biggestrole that we can play as investors is tohelp shape companies responsesto climate change to reduceemissions as quickly as possibleand to make those companies more robust,which will help the economybe more robust into the long term.And so we use stewardship as a feedback loop,where we're able to kind of sit down witha company that might be perhaps underweightin the portfolio because their climate planhasn't been as well advanced or mature.Sit down with them, provide the feedbackon the things that we would like to see?Perhaps it's better governance,perhaps it's more ambitious emissions reduction targets.And then hopefully that getstranslated into better plans fromthose companies that then may bethen more strongly represented in the index.So it feels like there's a real feedback loop.And we also use thingslike voting, collaborative engagement,and other parts of our stewardship planto help support those objectives.Fascinating. I would be very interesting to readyour views about what'sthe next evolution of climate investing.And in particular, what do you seeas an data do you needto inform your climate investment strategy?Yeah, it's a good question. So Ithink there's a couple of different things.One is, I think we're seeing a lot of interest frominvestors in increasing their exposure togreen revenues and climate solutions.And I know that FTSE has done a lotof work looking at looking at that issue.So I think that having data tosupport those objectives is going to be really critical.And the second thing I think is when you're looking atkind of issuers across a public equity portfolio,I think we're going to be increasingly looking forjurisdiction and sector specific data,because fundamentally what we're wanting tosee from issuers that we're invested inis to understand that they're actually managingclimate risk in the most robust way that theycan for their sort of geography fortheir sector within the policy settingsthat they're sitting in.But also, among their peers.So whether that's the mining sector,the oil and gas sector, whoever you're talking to.So really, I think it's going to be about havingreally specific pathways andreally specific data that helpsus to assess that in a credible way.Thank you, Laura. Thank you for watching,and please check all the videos of the seriesand visit the TPI website for more information.

Solange Le Jeune, Head of Sustainable Investment Equity, FTSE Russell
Laura Hillis, Director, Climate and Environment, Church of England Pensions Board