SOLUTION OVERVIEWFTSE JPX Net ZeroJapan Index Series
The next generation of climate transitionindices for Japan’s net zero future

Overview
Japanese investors are increasingly seeking to mitigate
climate risks, capture climate opportunities from thenascent green economy and ensure alignment withNet Zero by 2050 in their portfolios. The market has taken
evolutionary steps as it has developed from relatively
simple risk-based implementation options—such as
creating “ex fossil fuel” or “low carbon” portfolios—toapproaches that also capture the potential upside fromthe transition to a low carbon economy and a netzero pathway.
The FTSE JPX Net Zero Japan Index Series is based on JPX’s well-tracked
TOPIX 500, which provides diversified exposure across the Japanese stockmarket. The series aligns to net zero by 2050 by applying index tilts tothe market capitalisation weighted FTSE JPX Japan 500 Reference Indexand FTSE JPX Japan 200 Reference Index, to achieve a 30% reduction incarbon emissions and fossil fuel reserves against reference indices and an
average 7% annual reduction in carbon emissions and fossil fuel reserves.
It also achieves a significant uplift in exposure to the green economy andoverweights companies with better climate governance for the transition toa low carbon economy and support climate change efforts.

FTSE JPX Net Zero Japan Index Series
The Index Series consists of two indices based off the well-tracked
TOPIX 500, which provides diversified exposure across the Japanesestock market:− FTSE JPX Net Zero Japan 500 Index− FTSE JPX Net Zero Japan 200 Index

Benefits− Provides a clear picture of company alignment
with the climate transition based on multiple
climate parameters− Combines market-leading climate data fromFTSE Russell and the Transition Pathway
Initiative into a single index design, allowing
investors to align with net zero commitments− Uses FTSE Russell’s tilt-based multi‑factor
methodology for transparent index construction
and support investor stewardship and corporate
engagement activities

FTSE JPX Net Zero Japan Index Series

Features
Diversified exposure across the Japanese stock market
The base index of FTSE JPX Net Zero Japan 500 Index is a reference index that contains TOPIX 500 constituents and the base index ofFTSE JPX Net Zero Japan 200 Index is the largest 200 stocks in terms of market value in the reference index.

Adheres to international frameworks
These jointly-developed indices, are the first TOPIX 500 based Japanese climate integrated indices intended to align with the EU
Climate Transition Benchmark (CTB) criteria and the recommendations of the Taskforce on Climate-Related Financial Disclosures (TCFD).

Aligns with “Net Zero” pathways
FTSE Russell’s Target Exposure methodology drives decarbonisation of the index at a rate in line with climate scenarios set out
by the IPCC.

Supports the climate transition to a low carbon economy
Incorporates data assessments from the Transition Pathway Initiative (TPI) to evaluate companies’ climate governance for the transition
to a low carbon economy and support climate change efforts via the TPI Management Quality (MQ) and TPI Carbon Performance (CP).

Target outcomes by tilting constituent weights for risks, opportunity and transition alignment
The constituent weights are tilted with Fossil Fuel Reserves, Carbon Emissions, Green Revenues, TPI MQ and CP for potentiallysignalling the 2DC transition progress/performance of the companies.

TransitionAlignment

Climate Risks & Opportunities/Disclosed

Climate change parameters

FTSE Russell

Fossil fuel reserves

Underweight or exclude companies with fossil fuel reserves

Carbon emissions

Over or underweight companies according to their GHGemissions (see also “Net zero pathways”)

Green revenues

Overweight companies engaged in the transition to a green
economyTPI Management Quality

Over or underweight companies according to their management
quality (“climate governance”)

TPI Carbon Performance

Over or underweight companies according to their carbon
performance (“2°C/Below 2°C pathways”)

Net zero pathways

Apply annual decarbonisation (carbon emissions reduction) target
to reach “net zero” over c.10 years2

FTSE JPX Net Zero Japan Index Series

Index construction process
Starting universe
Start with the market capitalisation weighted index (e.g. FTSE JPX Japan 500 Reference Index or FTSE JPX Japan 200
Reference Index).
Step 1

Exclude companies
Apply the baseline exclusions: controversial weapons (anti-personnel mines, cluster munitions, chemical and biological weapons),
tobacco activities and companies identified as being non-compliant with UN Global Compact (UNGC) principles.
Step 1

Step 2

Calculation of climate scores
Constituents’ Fossil Fuel Reserve Intensity is calculated as the estimated CO2 equivalent GHG emissions in metric tons generated by
the combustion of a company’s fossil fuel reserves, divided by its full company market capitalisation (in USD).
Constituents’ Operational Carbon Emissions Intensity is calculated as the latest annual CO2 equivalent GHG emissions in metric tons
scaled by enterprise value including cash (in USD).
Constituents are assigned a FTSE Green Revenues ratio value, TPI MQ score and TPI CP score.
Step 1

Step 2

Step 3

Translate scores into tilts
Apply FTSE Target Exposure for targeted climate outcomes:− Underweight companies with fossil fuel reserves− Over/underweight companies according to their greenhouse gas emissions whilst applying sector neutrality− Overweight companies generating revenues from the global green economy− Over/underweight companies according to the quality of their climate governance− Over/underweight companies according to their carbon performance− Target a minimum 30% (CTB) reduction in carbon emissions and fossil fuel reserves intensity relative to the reference benchmark− Apply 7% average annual reduction in carbon emissions and fossil fuel reserves intensity relative to the base year
− Target an uplift in Green Revenues exposure
Step 1

Step 2

Step 3

Step 4

Adjust index and constrain final weights
The following constraints are applied during this process:− Industry weight constraints− Minimum stock level weight− Maximum stock level capacity ratio− Maximum turnover ratio
Step 1

Step 2

Step 3

Step 4

Step 5

Publish and review indices
The FTSE JPX Net Zero Japan Index Series are reviewed annually in December.

FTSE Russell

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About JPX Market Innovation & Research
JPX Group has established JPX Market Innovation & Research, Inc. (JPXI) as a new subsidiary parallel to the exchanges,
the self-regulatory organisation, and the clearing house. It commenced business on April 1, 2022. JPXI, as a leading index
administrator for the Japanese market, covers a number of equity indices including its flagship index, TOPIX.
As well as taking on JPX Group’s index, data, and digital-related services, thereby enabling JPX Group to provide all
market-related services from under one roof, JPXI will play a key role in creating the global, comprehensive financial andinformation platform “G-HUB” as set out under the long-term vision to be achieved by 2030 “Target 2030”.
Furthermore, JPXI will contribute to bolstering the competitiveness and status of Japanese financial and capital markets by enriching
services on ESG, listed company, and others considered necessary to enhance the attractiveness of the market, as well as envisioning
how financial and capital markets should look with the use of new technologies.

About the Transition Pathway Initiative
The Transition Pathway Initiative (TPI) is a global initiative led by asset owners and supported by asset managers. It
assesses companies’ preparedness for the transition to a low carbon economy, supporting efforts to address climatechange. Launched in 2017, it is rapidly becoming the “go-to” corporate climate action benchmark. The TPI is backed by
120 investors globally with over $40 trillion in combined assets under management and advice (February 2022).

FTSE Russell

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