Client engagement | Client story

February 2023

Integrating climate
risk into listedinfrastructure“As an asset class, listed infrastructure has a number of attractive investment
characteristics, but it’s often carbon-intensive.”“We wanted to find a way to help our clients access the asset class whilepursuing a climate transition pathway.”– Indira Sabitova, Portfolio Manager, Mercer

Listed infrastructure benefits come ata carbon cost
As an asset class, listed infrastructure has in the past demonstrated a number of
attractive investment characteristics, examples from FTSE Russell research include:–

Greater inflation sensitivity than conventional equities1–

Defensive qualities and resilience during market downturns2–

Possible yield enhancement3

However, these benefits often come at a cost in terms of carbon emissions.
According to a 2021 study by UNOPS, UNEP and the University of Oxford4,
infrastructure is responsible for 79 per cent of all greenhouse gas emissions and 88
per cent of all adaptation costs. For example, the greenhouse gas emission intensityof electricity-producing utility companies is often higher than necessary to meetclimate change goals.
Mercer asked FTSE Russell to research whether it would be possible to create anequity portfolio that retained the core investment characteristics of infrastructure,
while committing to a climate transition pathway.

1
234

FTSE Russell, page 10, Practical Considerations for Listed Infrastructure.
FTSE Russell, page 8, Practical Considerations for Listed Infrastructure.
FTSE Russell, page 7, Practical Considerations for Listed Infrastructure.
Source: October 2021, page 1, https://www.unep.org/resources/report/infrastructure-climate-action.

Adjusting infrastructure index
weights for the low carbon
transition
The FTSE Global Core Infrastructure
TPI Climate Transition Index
measures the performance of equities
in three core infrastructure sectors(transportation, energy andtelecommunications). Constituent
weights are adjusted to account for
the risks and opportunities associatedwith the transition to a low-carbon
economy.

Client engagement | Client story

The FTSE global core infrastructure
TPI climate transition index
The FTSE Global Core Infrastructure TPI Climate Transition index takes thestocks from three core infrastructure sectors (transportation, energy andtelecommunications) and adjusts stock weights to account for the risks andopportunities associated with the transition to a low-carbon economy
Four climate change considerations are used to determine the index’s constituent
weights: fossil fuel reserves, carbon emission intensity, climate governanceand carbon performance. Companies involved in controversial activities areremoved from the index.
Fossil fuelreserves– Underweight companies with fossil fuel reserves

Carbonemissions– Over or underweight companies according to theirgreenhouse gas emissions– Sector neutrality

Managementquality– Over or underweight companies according to theirclimate governance activities – aligned with theTaskforce on Climate-related Financial Disclosures’recommendations– Regional industry neutrality

Carbonperformance– Over of underweight companies according to theirforward-thinking commitments to carbon emissions
pathways – aligned to Paris Agreement and 2DC/
below 2DC warming scenarios

Source: FTSE Russell.

The index combines FTSE Russell’s expertise in climate data and sustainable
investment index design with the Transition Pathway Initiative’s (TPI) analysis
of how the world’s largest and most carbon-exposed/carbon-intensive publiccompanies are managing the climate transition.

Additional information

The index serves as the underlying performance measurement target of a passive
equity portfolio.

For more information on our rangeof products and services, visit
lseg.com/ftse-russell

FTSE Russell

For more information on the FTSE
TPI Climate Transition Index Series,
visit our website.

2

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