Global advisory, broking and solutions company Willis Towers Watson and index and analytics provider Qontigo announced today the launch of The STOXX Willis Towers Watson Climate Transition Indices (CTI), a new index series aimed at helping investors, governments and companies to manage and address the financial risks of the climate transition.

Unlike most climate indices that are based on company carbon exposure, CTI utilizes a bottom-up evaluation methodology to assess transition risk and opportunity for each company in its investment universe. The index determines companies’ “Climate Transition Value at Risk (CTVaR),” a proprietary measure of the impact on cashflows from moving from current policies to those aligned with the goals of the Paris Agreement.

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Craig Baker, Willis Towers Watson’s Global Chief Investment Officer, said:

“Investors need a robust framework that can quantify and incorporate the financial impact of climate risk, but this is something that just hasn’t been widely available until now. We believe that understanding this transition, through our Climate Transition Value at Risk methodology (CTVaR), should be one of the biggest sources of alpha across all asset classes over the next few years.”

Along with the launch of the CTI series, Willis Towers Watson announced that its affiliate AMX (Asset Management Exchange) is launching a UCITS fund tracking the STOXX Willis Towers Watson World Climate Transition Index. The firm anticipated the fund to accumulate roughly $1 billion from DB and DC pension plans by the end of the year.

David Nelson, Climate Transition Analytics Senior Director, Willis Towers Watson, said:

“By curating data from multiple sources, the CTI takes a unique approach by refreshing forward-looking company transition risk over time rather than simply using historic carbon emissions data. Whilst current climate metrics can help to identify outliers, many of the current approaches to factoring climate risk into investments tend to be simplistic and fall short of accurately identifying their impact on company valuations.”

Stephan Flaegel, Chief Product Officer, Index for Qontigo added:

“Understanding and addressing climate transition risk is essential to investment decisions today. Together with Willis Towers Watson, we took a collaborative approach to bring an innovative solution to market, translating the Willis Towers Watson CTVaR model into a transparent, rules-based index solution.”