Industry Updates

Invesco adds physical and transition risk metrics to five climate ETFs

The changes are not expected to have a ‘material impact’ on ETF portfolios

Jamie Gordon

a tree on a beach

Invesco will reduce the exposure to physical and transition risks across five climate ETFs following changes from MSCI to the underlying indices.

Effective 1 December, MSCI will introduce nine new emissions scenarios developed by the Network for Greening the Financial System into its climate value-at-risk model, looking at future climate and socioeconomic developments.

The index provider will also replace its aggregated extreme weather equity climate metric with the broader physical risk value-at-risk metric, based on the Intergovernmental Panel on Climate Change’s (IPCC’s) SSP3-7.0 scenario.

This details a medium-to-upper-end emissions pathway including a 2.7°C temperature increase by the end of the century, with emissions roughly doubling from their current levels by the end of the century. 

MSCI added it would replace its metrics based on the AIM CGE model with its 1.5°C REMIND Orderly-based metrics to calculate aggregate climate value-at-risk.

The five ETFs affected by the changes are the: 

Invesco said in a statement it does not expect the changes to have a “material impact” on the portfolios of each ETF on their next rebalancing date.

In a statement, the issuer said: “The implementation of these new emissions scenarios allows better modelling of the physical risks to the portfolio under a high-emissions future, as well as the policy risks and transition opportunities arising from Paris-alignment.

“Ultimately, the change should reduce the exposure of each Index – and, by virtue of tracking each index, the funds – to transition and physical climate risks and facilitate the pursuit of opportunities arising from a transition to a lower carbon economy.”

Last month, Invesco became the latest asset manager to increase the sustainability thresholds across its PAB ETFs following clarifications from the European Commission on how sustainable investments can be measured.

Featured in this article

Logo for InvescoLogo for MSCI