University of Cambridge researchers based at the Department for Land Economy have selected index provider Bloomberg Index Services Limited to launch the first global corporate bond index to cover fossil fuel producers, utilities, insurance, and financing, with the aim of driving investment to reduce real-economy emissions.
This is a critical – and hugely challenging – moment for climate action. Legal and political pressures have paralysed asset managers and other financial service providers, leading to a recent wave of actors leaving investor climate coalitions. However, asset owners are increasingly seeing the need to take a leadership role in addressing climate change, which threatens the long-term future of their portfolios and the wider economy.
That’s why we are delighted to announce that Cambridge researchers based at the Department for Land Economy have selected index provider Bloomberg Index Services Limited to launch the first global corporate bond index to cover fossil fuel producers, utilities, insurance, and financing, with the aim of driving investment to reduce real-economy emissions.
"This is an enormously impactful project which showcases the high-quality research undertaken at Cambridge," Anthony Odgers, University of Cambridge Chief Financial Officer
Why a bond index?
The launch of the bond index by an 816-year-old institution is an unusual process and a tale worth telling. It began with a peer-reviewed paper by Dr Ellen Quigley, Principal Research Associate at Land Economy, exploring the case for evidence-based climate impact by institutional investors. This was followed by an internal feasibility study based at Jesus College, Cambridge (which continues to co-host the project), and supported by several other parts of the University.
With feasibility assessed, the team went out to global index providers to explore their interest. All of the leading players were interested in building this index, yet all grappled with a lack of access to data and the complexity of assessing companies based on their activities (e.g., whether they were building new fossil fuel infrastructure), not their business classification. An extensive Request for Proposals process resulted in naming Bloomberg Index Services Limited as our provider. The project aims to provide a genuine solution for asset owners looking to align their corporate debt instruments with their climate targets and to avoid both ineffective blanket interventions and greenwashing.
Rules-based engagement: a lever for behaviour change
Debt benchmarks have a key role to play in any real efforts to tackle the expansion of fossil fuels. This project is innovative because it focuses on exclusions and weightings of companies based on their current corporate activity, instead of using an approach that relies on blanket exclusions by business classification (which does not generate incentives to change behaviour). For example, a company might be classed as a fossil fuel company, but if it stops expanding new fossil fuel operations and aligns to an appropriate phase-down pathway, the company has an opportunity to be included in the index and gain access to capital via funds which use the index, as a result.
Read the full University of Cambridge article here.
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