Willis Towers Watson (WTW) and German financial intelligence innovator, Qontigo, have launched new climate transition indices, the STOXX WTW Climate Transition Indices (CTI), which aim to help companies manage risk and capture climate opportunities.

The Asset Management Exchange (AMX) has also launched a UCITS fund that will track the climate transition indices.

The fund will be available to defined benefit (DB) and defined contribution (DC) pension schemes across multiple countries and is anticipated to receive US $1bn by the end of 2021.

The indices is expected to help investors and companies to manage risk and capture climate opportunities in their portfolios, aligning with Paris goals, and working towards net zero.

WTW has partnered with EOS at Federated Hermes to deliver stewardship services, including voting and engagement, for the fund.

“This new fund will be a valuable tool for pension plans to both reduce their climate risk and take advantage of the opportunities thrown up by a transition to a Paris-aligned world. Climate change is a systemic and urgent global challenge and also one that will significantly disrupt capital allocations and returns,” said WTW global chief investment officer, Craig Baker.

The indices will harness a proprietary Climate Transition Value at Risk (CTVaR) measure analysis to estimate the impact of transition on projected company cashflows, factoring in impact caused by a move away from typical business practices, to fully aligned emissions pathways.

“Investors need a robust framework that can quantify and incorporate the financial impact of climate risk, but this is something that just hasn’t been widely available until now,” said Baker.

According to a WTW statement, by incorporating climate risk explicitly, this approach allows investors to allocate in an efficient, transparent, and low-cost way, meaning they can target firms intending to build towards an economy that both manages and values climate risks.

WTW climate transition analytics senior director, David Nelson, said the indices marks a move away from traditional risk metrics: “Whilst current climate metrics can help to identify outliers, many of the current approaches to factoring climate risk into investments tend to be simplistic and fall short of accurately identifying their impact on company valuations,” he said.

“By curating data from multiple sources, the CTI takes a unique approach by refreshing forward-looking company transition risk over time rather than simply using historic carbon emissions data,” he added.

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