Morningstar has launched two climate indices to help investors meet the European Union’s Climate Transition Benchmark (CTB) and Paris Aligned Benchmark (PAB) requirements.
The Morningstar Global Markets EU Climate Transition Benchmark index will employ a tilt weighting to hit EU CTB regulatory requirements and will target a 30% minimum reduction in average emission of its parent benchmark, the Morningstar Global Markets Large-Mid index.
The index is also the parent index for the Morningstar Global Markets Paris Aligned Benchmark index which will target a 50% minimum reduction in average emissions. Both will aim for a decarbonisation trajectory of 7% per year.
Included in the top 10 holdings for both indices are Apple, Microsoft, Amazon, Facebook, Tesla and Alphabet.
The indices will combine core Morningstar benchmarks with carbon emissions data and carbon risk ratings from its research and data provider Sustainalytics.
According to Morningstar, 63% of investment companies cite a lack of quantitative data as a major or moderate challenge to ESG implementation, with 64% citing a lack of transparency or insufficient corporate disclosure.
Data continues to be one of the biggest challenges in the ESG ETF space which has seen rapid growth over the past two years.
The launches come in the run-up to the United Nations COP26 climate summit in Glasgow on Sunday.
Tobias Sproehnle, head of Morningstar Indexes in Europe, commented: “As we approach the start of COP 26, global investors are more focused than ever on climate change and asking for more advanced measures to track progress in meeting their commitment to carbon neutrality.
“Our new EU Climate indices help clients address the complexity of climate policy to meet regulatory requirements and create more focused investment strategies.”
Last month, research from think-tank InfluenceMap found most ESG and climate strategies are not aligned with the goals of the Paris Agreement and often invested in the world’s top polluters, adding a lack of a universal standard or regulation makes it difficult to compare products.