New equity index to reward companies acting responsibly on climate change
Companies in the ASX 300 are responsible for an estimated 40% of Australia’s emissions.
But now a new Australian equity index known as the Australian Climate Transition Index (ACT Index) will support and reward 100 companies doing the most to stem climate change.
The ACT Index was developed by BNP Paribas SA, ClimateWorks Australia, ISS ESG and the Monash University’s Centre for Quantitative Finance and Investment Strategies.
The Centre for Quantitative Finance and Investment Strategies initiated the project through its partnership with BNP Paribas, and then contributed to design the index methodology.
The Centre will also play a key role in the Index monitoring committee.
“The ACT Index uses five ‘dynamic’ climate scenarios, which will continue to be adjusted to reflect future regulatory, technology and social environmental changes,” said Professor Gregoire Loeper, the Director of the Centre for Quantitative Finance and Investment Strategies.
“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,” he said.
“The Index will enable investors and Australian companies to align their strategies with evidence-based climate transitions.”
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 ACT Index uses a forward-looking approach, recognising that it is the future transition pathways that matter most to stabilising climate change.
BNP Paribas recently announced a series of equity-linked green bonds totalling A$140 million. The bonds are linked to the performance of the ACT Index, the proceeds of which will be used to invest in a portfolio of green projects.
Etienne Grisey, Head of Equity Derivatives Structuring, Asia Pacific, BNP Paribas said ‘Project Green Kangaroo’ was made possible thanks to the unique positioning of the Centre for Quantitative Finance and Investment Strategies.
“Its expertise in financial mathematics has contributed a high level of expertise throughout the methodology design,” said Mr Grisey.
“The forward-looking and scenario-based methodology will pave the way for more impact through climate transition investment in Australia and globally,” he said.
Marine Deshayes, Senior Project Manager at ClimateWorks Australia said the project began almost three years ago, as a conversation between BNP Paribas and Professor Loeper.
“It was clear that forward-looking climate indices were missing in Australia, and Gregoire knew that ClimateWorks Australia's climate scenarios could help fill that gap,” said Ms Deshayes.
“The Centre for Quantitative Finance and Investment Strategies was the 'glue' that brought all the project partners together, and since then, has acted as a trusted academic observer, reviewing and constructively challenging our scoring approach.”
For further information, see: https://australianclimatetransition.bnpparibas.com/#