Climateworks’ dynamic scenarios modelling underpins the first forward-looking Australian Climate Transition Index for the ASX300
Today, international financial institution BNP Paribas announced a series of equity-linked green bonds totalling A$140 million. The bonds are linked to the first forward-looking climate index in Australia, the proceeds of which will be used to invest in a portfolio of green projects. Investors include First State Super, QBE insurance and the Clean Energy Finance Corporation.
Climateworks Australia jointly developed the Australian Climate Transition Index (ACT Index) with BNP Paribas, ISS ESG and the Centre for Quantitative Finance and Investment Strategies at Monash University. The ACT index uses five ‘dynamic’ climate scenarios, which will continue to be adjusted to reflect future regulatory, technology and social environmental changes. It seeks to identify companies likely to perform well in a world undergoing a 2°C transition and to continue to play a part of the Australian economy in a 2°C future.
‘This project draws on our research and modelling of dynamic climate transition scenarios, developed for our Decarbonisation Futures report,’ says Climateworks CEO Anna Skarbek. ‘The ACT Index uses a forward-looking approach, recognising that it is the future transition pathways that matter most to stabilising climate change. We are pleased that this index now enables investors and Australian companies to align their strategies with evidence-based climate transitions.’
Climateworks senior project manager Marine Dehayes says a co-development approach with ISS ESG was used to develop a dynamic scoring methodology for the index which will be continually updated and improved.
‘This project began almost three years ago as a conversation around what could be done to improve sustainable indices. It was clear that a forward-looking assessment which includes market risks and opportunities was missing in Australia, which is why the assessment framework and methodology we have co-developed incorporates both climate scenarios and a company’s strategy,’ she says.
‘It was clear that a forward-looking assessment which includes market risks and opportunities was missing in Australia, which is why the assessment framework and methodology we have co-developed incorporates both climate scenarios and a company’s strategy.’Marine Dehayes, Climateworks senior project manager
‘The company assessments were built on scenario analysis that provided sector-level data for transition risks and opportunities and were used to create a simple scoring approach.’
The ACT Index uses an assessment framework that replicates what investors should be asking of the companies in which they wish to invest. Its methodology acknowledges the significant diversification of some of the companies in the ASX300, including those involved across multiple sectors. The clarity of the framework will help guide both investors in their assessments and companies in their transition pathways by encouraging better company disclosures.
Climateworks is financially independent from the performance of the index, and will continue to provide our scenario data for the ongoing process of calculating company scores with ISS ESG’s company-specific data.
‘We will continue to analyse the risks and opportunities of each of those sectors independently,’ says Anna Skarbek. ‘Investors are interested in a company’s climate risks and opportunities as well as how a company’s transition strategy can mitigate the risks and allow them to seize new opportunities.
‘By being one of the first forward-looking products that takes a holistic view of products and services as well as operations, and aligned to the Paris Agreement scenarios, we hope this has the potential to shift the whole benchmark for the ASX300.’