April 2020

Case study | Supporting the climate transition

FTSE TPI ClimateTransition Index
Capturing companies’ readiness for thelow-carbon economy

About the customer
ProfileObjectives

Index criteria

The Church of England Pensions Board
manages over £2.8B in assets andserves over 40,000 beneficiaries.*–

Respond to the financial risk ofclimate change to protect theinterests of future retirees.

–FTSE Russell has launched theFTSE TPI Climate Transition
Index Series.

The Pensions Board is an active owner
and is committed to ethical andresponsible investment.

–

Integrate the insights of the TPI
into the Pensions Board’s passive
equity portfolio.

–The Church of England Pensions Board
is a co-founder of and continues toco-Chair the Transition Pathway Initiative(TPI), which helps assess companies’
preparedness for the low-carbon
economy.

–Reward and incentivise
companies whose public targets
are aligned with the 2015 Paris
Climate Change Agreement.

The index captures companies’
exposure to five climate change
parameters (fossil fuel reserves,carbon emissions, green
revenues, management quality,carbon performance).

–

Under the new index, the Churchof England’s Pensions Boardportfolio will have a c.50% lower
carbon intensity than its current
passive allocation.

–The FTSE TPI Climate Transition
Index will form the basis of a £600M
passive (index-tracking) portfolio run
on behalf of the Church of England
Pensions Board.

–The TPI is supported globally by
71 investors with over $19T** in assets
under management as of January 2020.
* Church of England website,
February 2020** Transition Pathway Initiative website,
January 2020–

Significantly underweight or
remove those companies whose
public targets are not aligned with2°C/Below 2°C outcomes, andthose with insufficient climaterelated disclosure.
Support the Pensions Board’s
climate engagement goals for net
zero through initiatives such as
Climate Action 100+.

The need
In 2018, the Church of England Pensions Board made a commitment to theChurch’s General Synod that it would disinvest by 2023 from those companies thathave not set themselves on a path to alignment with the landmark Paris Climate
Agreement (“COP21”), reached in December 2015.
Under COP21, signatories agreed to limit global warming to a maximum of 2°Cduring the current century and to reach carbon neutrality (net zero emissions ofgreenhouse gases) by the end of the century.
Recently, the Church of England Pensions Board has also signed up to the United
Nations’ supported Net-Zero Asset Owner Alliance, whose members are committed
to align their portfolios to become net zero by 2050. The Board is also a leading
member of the global engagement initiative Climate Action 100+, where the Board
co-leads the negotiations with Royal Dutch Shell.

Case study | Supporting the climate transition

The Pensions Board has stated that it has made these commitments to ensure thatits beneficiaries’ funds are managed in a way that delivers the necessary returns
and mitigates the financial risk posed by the transition. The Board is committed tosupporting the transition and recognises that companies are able to put in placestrategies to do so with publicly verifiable targets.
A key tool in supporting the Board’s understanding of climate transition risk has
been the Transition Pathway Initiative (TPI), which it Co-Chair’s with the Environment
Agency Pension Fund. To help meet its stated goals, during the last 18 months theChurch of England Pensions Board worked closely in an innovative partnership withFTSE Russell and TPI to integrate TPI’s insights into its passive investments.
As a sign of its commitment to supporting the climate transition, in January 2020 thePensions Board announced it was making a £600 million allocation (January 2020)
to a portfolio tracking the new FTSE TPI Climate Transition Index. This represents
all of the fund’s developed market passive equity assets.

The index solution
FTSE Russell has launched the FTSE TPI Climate Transition Index, which will form
the basis of a £600M passive (index-tracking) portfolio run on behalf of the Churchof England Pensions Board.
The index is a collaborative effort: it has been developed jointly by FTSE Russell,
the Church of England Pensions Board and the TPI. The index has 4 objectives:

The Transition Pathway
Initiative
The Transition Pathway Initiative(TPI) is a global initiative led byasset owners.
It assesses how individual companies
are positioning themselves for thetransition to a low-carbon economy.
The TPI is backed by 71 fundswith over $19T of combined assets
under management or advice as ofMarch 2020.
The TPI was co-founded and is
co-chaired by the Church of England
Pensions Board and the Environment
Agency Pension Fund, in partnershipwith the Grantham Research Institute atthe London School of Economics andsupported by the UN backed Principles
for Responsible Investment (PRI).
FTSE Russell is the TPI’s data partner.

1. To form the basis of a DM equity passive allocation (i.e. deliver global equity beta)
2. To explicitly incorporate the TPI’s company assessments
3. To deliver significantly improved “climate characteristics” vs. the market
cap benchmark
4. To provide a tool for investors to reinforce climate engagement objectives,through initiatives such as Climate Action 100+, seeking commitments fromcompanies to align to the “Paris goals”
It incorporates analysis by both FTSE Russell and TPI on companies’ exposure
to five climate change parameters: green revenues, fossil fuel reserves, carbon
emissions, management quality and carbon performance assessments (see thechart below).
Fossil fuelreserves– Underweight companies with fossil fuel reserves

Carbonemissions– Over or underweight companies according to their
GHG emissions– Sector neutrality

Green revenues– Overweight companies engaged in the transition to agreen economyManagement
quality– Over or underweight companies according to theirmanagement quality (“climate governance”) score– Regional industry neutrality

Carbonperformance– Over or underweight companies according to theircarbon performance (“2DC pathway”) assessment

FTSE Russell“Our beneficiaries need toretire into a world that isn’t
impacted by the extremes ofclimate change. We need to
manage their funds in a waythat ensures we continue todeliver a return whilst
mitigating climate risk andsupporting the transition to a
low-carbon economy. This
will ultimately shape theworld that our futurebeneficiaries retire into.”
Adam Matthews, Director (Ethics andEngagement), Investment Team, The
Church of England Pensions Board2ABOUT FTSE RUSSELL
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