The world is undergoing a profound shift away from fossil fuel energy sources and towards a low-carbon economy. This transformation is reshaping both geopolitical and economic dynamics, creating risks and opportunities for market players to manage across their investments.
ESG investing, and in particular climate investing, is experiencing significant growth. Appetite from investors for investment solutions that follow positive environmental, social and governance principles is also supported by ESG regulations such as the EU Climate Benchmarks Regulation, SFDR, the MiFID II Sustainability amendment, EU Taxonomy, etc.
As a leading index provider in Europe, Euronext has been a pioneer in the field of ESG and climate indices since 2008 when it launched its first low-carbon index, which is now compliant with the Paris Agreement. Euronext’s range of climate indices now includes Paris-Aligned (PAB) and Climate Transition (CTB) index solutions, as well as a new family tracking Science Based Targets (SBTi) validated companies.
Science Based Targets initiative
The SBTi is a standard-setter and validation service provider for ambitious corporate climate action. Created in 2015 in partnership with CDP, the World Resources Institute (WRI), the World Wide Fund for Nature (WWF) and the United Nations Global Compact (UNGC), SBTi enables businesses and financial institutions to set ambitious emissions reduction targets in line with climate science.
The SBTi has developed guidance and standards in line with the latest climate science that enables companies and financial institutions to set bold decarbonisation targets, then validate these targets against the SBTi standards. Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement.
Over 2,800 companies and financial institutions now have validated science-based targets and over 2,500 more have committed to set targets. By the end of 2022, 23% of Fortune 500 companies had validated targets. The total amount of emissions covered reached 3 gigatonnes (Gt), and companies with targets and commitments represented more than one-third of the global market capitalisation, at $38trn.
Based on current SBTi standards and with the support of CDP, Euronext has launched a family of SBT 1.5° indices, starting with the launch of the CAC SBT 1.5° in 2022 and extending the range further with the Euronext Europe SBT 1.5° Index and Euronext Eurozone SBT 1.5° index.
SBT indices: Complementing the EU PAB and CTB indices
Designed to support the growing demand for climate-oriented solutions, the Euronext SBT 1.5° indices identify companies that have had science-based targets validated by the SBTi. The Euronext methodology selects only companies that have SBTi-validated targets to reduce greenhouse gas (GHG) emissions in line with 1.5°C for Scope 1 and Scope 2 emissions, and with well below 2°C for Scope 3 emissions. Companies that have involvement in controversial activities such as tobacco, unconventional oil and gas, thermal coal, civilian firearms, controversial weapons and companies facing critical controversies with regards to the United Nations Global compact principles are excluded from the index.
The Euronext SBT indices can be seen as complementary solutions alongside Paris-Aligned (PAB) indices. However, although both PAB and SBTi indices are in line with Paris-Agreement objectives, some differentials should be highlighted.
First, the SBTi is an internationally-known initiative to fight against climate change. Paris Aligned Benchmark is a European initiative;
The SBTi has defined specific frameworks to approve the decarbonisation targets of companies in some sectors (for example, financial institutions) Conversely, the PAB measures the decarbonisation of a portfolio using one standardised approach for all sectors;
The decarbonisation target in the SBT indices is set at company level, while for PAB indices it is set at portfolio level;
The SBT indices take a "forward-looking" approach based on the SBTi’s unique climate science-based methodology, where reduction targets are independently validated by a team of technical experts through the target validation service.
Laurent Babikian, global director data products and distribution at CDP: "We need all companies across the spectrum to decarbonise emissions across their value chain and have a credible transition plan in place to limit warming to 1.5°C. These new indices will enable investors to have exposure to a broader range of companies across the index with approved, science-based 1.5°C emissions reduction targets. This next step broadens the realm of opportunities for sustainable financial products in the market and to counter greenwashing. We are now well into the decisive decade for action on climate, and it is great to see Euronext extending its commitment to spur action in the financial sector."
Euronext indices on innovative and sustainable themes
For the past nearly 40 years, Euronext has designed, calculated and published a wide range of indices of all sizes and profiles, making it one of the leading index providers in Europe.
In response to the growing demand for sustainable investment tools based on key and trending topics, Euronext offers over 350 ESG indices, and is a leading provider in Europe of ESG indices for ETFs and structured products.
The Euronext suite of climate-focused products and services includes indices aligned with EU Climate benchmarks such as the Paris-Aligned Benchmarks (PAB) and Climate Transition Benchmarks (CTB). Euronext also offers indices compliant with EU ESG/SRI labels such as the French SRI label, Towards Sustainability label and German FNG label.
Euronext provides sustainable index solutions such as the Euronext Biodiversity indices, indices focused on environmental goods and services, positive impact water, hydrogen and wind and solar indices. The new Euronext SBT indices are the latest innovative climate-focused indices to join the Euronext Climate Index family.
Euronext’s mission is to connect European economies to global capital markets, to accelerate innovation and sustainable growth. Euronext will continue to develop new indices with its customers, for its customers, to shape capital markets for future generations.
Euronext NV, as a leading European market infrastructure, exchange operator and index provider, has pledged to align its own greenhouse gas emissions with the 1.5°C global warming limit – the most ambitious climate target set by the Paris Agreement. This commitment was also made through the Science Based Targets initiative (SBTi), which helps companies determine how their operations can stay within the bounds of a sustainable future. By taking these steps, Euronext hopes to demonstrate leadership in combatting global warming and encourage other firms to follow suit.