February 2022

Client engagement | Client story

Climate Investing with
Paris-AlignedBenchmarks“Brunel considers environmental, social and governance risks as part of ourfiduciary responsibilities. We look at our fiduciary duty in a very holistic way;
we strongly believe that long-term financial returns are best achieved byinvesting sustainably.”– Faith Ward, Chief Responsible Investment Officer, Brunel PP, 2021

About the client
ProfileObjectives

Solution

The client, Brunel Pension Partnership,
wished to integrate climate risks andopportunities into its portfolios and alignthem with the climate goals of theParis Agreement.

To meet the minimum carbon
emission reductions of the EU’s
Paris-aligned benchmarks, as wellas building in forward-looking metrics
and governance protections.

Brunel PP chose FTSE Russell’sParis-aligned benchmark series as
the basis for a new, £3bn-plus
passive fund allocation.

Supporting sustainable growth
Brunel Pension Partnership (PP) is one of the UK’s eight national local
government pension scheme pools. It combines the investments of ten likeminded pension funds: Avon, Buckinghamshire, Cornwall, Devon, Dorset, theEnvironment Agency, Gloucestershire, Oxfordshire, Somerset, and Wiltshire.
Brunel’s stated goal is to deliver stronger investment returns over the longterm, as well as protecting its clients’ interests by contributing to a moresustainable and resilient financial system. In turn, this will support sustainableeconomic growth and a thriving society.
Brunel’s responsible investment approach rests on three pillars: to integratesustainability criteria into its operations and investment activities; tocollaborate with others across the industry and support effective policymaking;and to be transparent in its activities.

“We are interested in what isin the long-term interest of ourfunds’ beneficiaries,
recognising the economic andsocial realities of the world inwhich those beneficiaries willretire. It’s not just about themonetary value of the pension– it’s about investing for aworld worth living in.”– Faith Ward, Chief Responsible Investment
Officer, Brunel PP, 2021

Client engagement | Client story

In 2020, Brunel adopted a climate change policy, committing to decarbonise its
investment portfolios, manage climate risk and achieve a net-zero objective by2050. However, at the time Brunel recognised that the lack of suitable benchmarks
was an impediment to achieving these goals. It therefore sought to take an activerole in helping develop such benchmarks.

The role of climate benchmarks
Under the 2015 Paris Climate Change agreement, 197 countries committed to cap
the rise in global temperatures at a maximum of 2°C above pre-industrial levels,and to pursue efforts to limit the increase to 1.5°C.
To help achieve this goal, in 2019 the European Union’s Technical Expert Group on
Sustainable Finance published minimum standards for so-called Paris-aligned andClimate Transition benchmarks (‘PAB’ and ‘CTB’, respectively).
Both types of benchmarks require a minimum annual reduction in greenhouse gas
emissions of 7 percent until 2050. PAB also have a relative decarbonisation goal of-50 percent relative to a market index, while CTB have a -30 percent relative
reduction goal.
Climate benchmarks serve users in a number of ways: as an underlying target for
passive investment strategies, in performance measurement for active strategies,
as an engagement tool, and as a policy benchmark to help guide investors’
strategic asset allocation.

PassivetargetPolicy
guideClimate
benchmark

PerformancemeasureEngagement
toolBrunel worked closely with FTSE Russell to support the launch of the Paris-aligned
benchmark series in 2021, with the intention of transitioning more than £3bn of its
equity portfolio to index funds tracking benchmarks from this series.

The FTSE EU Climate
Benchmarks series
The FTSE EU Climate Benchmarks Index Series is designed to reflect theperformance of global, regional, and domestic equity markets, where the weights ofindex constituents vary to account for the risks and opportunities associated withthe transition to a low carbon economy.
The climate benchmarks are constructed using FTSE Russell’s Target Exposure
framework. Under this framework, the weight of index constituents are ‘tilted’ up ordown according to one or more exposure objectives. The indices combine data andanalysis from FTSE Russell and the Transition Pathway Initiative (TPI).
The indexes’ methodology is aligned with the EU’s standards for low-carbon
benchmarks. In this way, it supports investors’ decarbonisation or net-zerostrategies. However, FTSE’s benchmarks also exceed the minimum requirementsof the EU regulation:–––

The benchmarks have increased exposure to companies with green revenues,
high climate governance, and emission reductions that are in line with the goalsof the Paris Agreement.
They exclude ‘pure play’ (>50% revenues) oil sands, thermal coal extraction andthermal coal power generation companies.
They limit the weights of companies within the banking sector.

The FTSE EU Climate Benchmarks Index Series integrates forward-looking metrics
and governance protections from the Transition Pathway Initiative. TPI provides
assessments of how the world’s largest and most carbon-exposed companies aremanaging the climate transition.

FTSE Russell

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Client engagement | Client story

A powerful signal on addressing
climate risk
Brunel’s decision to reallocate over £3bn to funds tracking FTSE Russell’sParis-aligned benchmarks sends a powerful signal to the market that major asset
owners are taking action to decarbonise their portfolios. Investors are increasingly
recognising that innovative passive strategies represent an effective way to mitigate
climate risk, while also capitalising on the investment opportunities offered by thegrowing green economy.

FTSE Russell

Additional information
For more information on the FTSE EU
Climate Benchmarks, click here
For more information on the FTSE
Russell Target Exposure Framework,
click here
Further information on all our products
and services is available atlseg.com/ftse-russell

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ABOUT FTSE RUSSELL
FTSE Russell is a leading global provider of index and benchmark solutions, spanning diverse asset classes and investment objectives. As a trusted
investment partner, we help investors make better-informed investment decisions, manage risk, and seize opportunities.
Market participants look to us for our expertise in developing and managing global index solutions across asset classes. Asset owners, assetmanagers, ETF providers, and investment banks choose FTSE Russell solutions to benchmark their investment performance and create investment
funds, ETFs, structured products, and index-based derivatives. Our clients use our solutions for asset allocation, investment strategy analysis, andrisk management, and value us for our robust governance process and operational integrity.
For over 35 years we have been at the forefront of driving change for the investor, always innovating to shape the next generation of benchmarks
and investment solutions that open up new opportunities for the global investment community.
CONTACT US
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