Researchers at the University of Cambridge have selected Bloomberg Index Services Limited to introduce the first global corporate bond index. This new index aims to cover fossil fuel producers, utilities, insurance, and financing sectors to push investments towards reducing emissions in the real economy.
The announcement comes at a time when climate action is facing numerous challenges, such as legal and political pressures on asset managers. Despite some actors leaving investor climate coalitions, there is a growing recognition among asset owners of the need to address climate change due to its potential impact on portfolios and the global economy.
Professor Martin Dixon, Head of the Department of Land Economy, remarked, “We are delighted that this project has reached such a key milestone." He highlighted the importance of this project as a potential 'systems demonstrator' for research efforts in addressing climate issues.
The concept for this bond index originated with a peer-reviewed paper by Dr. Ellen Quigley of the Department of Land Economy. The feasibility of the project was further explored within Cambridge, leading to an extensive Request for Proposals process. Bloomberg was eventually chosen to provide the index. This move is seen as an effort to align corporate debt instruments with climate goals and avoid ineffective interventions and greenwashing.
There is a pressing need to address the risks posed by the continued growth of the fossil fuel industry, which is expected to be inconsistent with decarbonization goals. The focus on the debt market arises from the fact that around 90% of new fossil fuel expansion financing comes from bonds and loans. The bond market is seen as a crucial area for influencing changes concerning fossil fuel expansionism.
Anthony Odgers, the University of Cambridge’s Chief Financial Officer, expressed the project's significance, calling it a "game-changer" for asset owners interested in the impact of their corporate debt investments on fossil fuel expansion. Odgers further mentioned that once the index is launched, Cambridge plans to invest in financial products related to it.
Lily Tomson, Senior Research Associate at Jesus College, emphasized the novel approach of the index methodology, which focuses on companies' activities rather than business classifications. This provides companies with the opportunity to be included if they align with certain criteria.
Input from influential asset owners like CalSTRS, USS, PUBLICA, and UNJSPF has been instrumental in developing the index. Pedro Guazo of UNJSPF highlighted that asset owners now have a means to discourage fossil fuel expansion.
The index builds on data sources not traditionally used in this space, such as the Global Coal Exit List and the Global Oil and Gas Exit List. The University of Cambridge continues to support evidence-based research on climate change, demonstrating a commitment to impactful actions alongside 74 other educational institutions.
The bond index is slated for launch later this year. Those interested in learning more are encouraged to contact the team at bondindex@landecon.cam.ac.uk.