Researchers at the University of Cambridge have developed what they describe as the first global corporate bond index that covers fossil fuel producers, utilities, insurance and financing in an effort to support investment strategies focused on companies working to reduce real-economy emissions.
Launching on Bloomberg Index Services Limited (BISL) later this year, the Bloomberg Cambridge University fixed income index is designed to offer investors the ability to invest across investment-grade corporate debt globally through financial products referencing the index.
The key difference provided by the index is the methodology, which selects bond-issuing companies based on their current corporate behaviour rather than on whether they are classified within a particular industry, such as fossil fuels. This provides for fossil fuel companies no longer undertaking expansion and phasing down in alignment with the Paris Agreement to be included or re-included in the index.
Approximately 90% of new financing for fossil fuel expansion comes from loans and bonds, making debt one of the most impactful levers for investors to contribute to halting climate change, according to the researchers. Bond indices, therefore, play a critical role in auto-allocating new capital to companies in the real economy.
Anthony Odgers, chief financial officer at the University of Cambridge, said: “This is an enormously impactful project which showcases the high-quality research undertaken at Cambridge. The index is a game-changer for the growing number of asset owners who invest in corporate debt and understand its impact on fossil fuel expansion, particularly the construction of new fossil fuel infrastructure such as coal- and gas-fired power plants which risk locking in fossil fuel usage for decades.
“Once the index launches, the University of Cambridge expects to invest some of its own money against financial products referencing it. This will enable us to align our fixed income holdings with our institution-wide objectives.”
Dave Gedeon, CEO of Bloomberg Index Services Limited, added: “We are excited to work with the University of Cambridge and support their collaboration with leading asset owners. Bloomberg transition risk analytics provides support to Cambridge’s innovative methodology to transform this index into a tool for asset owners to address their goals of engaging corporations with the latest academic evidence for impacting change in the real economy.”
Alongside the University of Cambridge, the index will be used at launch by investments from the United Nations Joint Staff Pension Fund, which provided input and technical market expertise that underpins the index.
