God is moving into the index business.
The Church of England Pension Board, overseer of the £2.8bn retirement savings pot for the Anglican clergy, will on Thursday launch a passive index aligned with the Paris climate goals on the London Stock Exchange.
The church will invest an initial £600m in the FTSE TPI Climate Transition Index which follows calls from Mark Carney, the outgoing governor of the Bank of England, for pension funds to tackle the financial risk of climate change.
Through its £12bn endowment and investment funds, the Church of England has become a powerful international advocate for sustainable investment and better governance standards. It immediately sold its shares in Brazilian miner Vale after a dam collapse in Brazil that killed more than 200 people, while also ridding its investment portfolio of thermal coal and tar sands.
Starting in 2023, the church will also sell shares in other fossil fuel companies that are slow to respond to global warming.
Three years ago, the church’s investment wing launched the Transition Pathway Initiative, a public database that assesses companies on their carbon performance. The TPI now includes 60 big investors controlling more than $18tn in assets.
Justin Welby, Archbishop of Canterbury, said there was a moral and financial imperative to address the “climate emergency and to use those tools available to us to support the goals of the Paris climate agreement”.
“It is possible to act, to take leadership and in doing so challenge the market that is currently aligned to a world of 3.8 degrees of warming,” he said. The Paris agreement seeks to limit the increase in global temperature to below two degrees.
The church said its new index was the first global one that allowed passive funds to back those companies that were aligned to the Paris accord. Initially, it will only be available to institutional investors.
The index was developed in collaboration with FTSE Russell, one of the “Big Three” index providers alongside MSCI and S&P Dow Jones, and the TPI.
The Church of England Pension Board previously used a modified version of the MSCI World Index for its £600m passive investment portfolio.
Companies with public targets aligned to Paris have a higher weighting in the new index, while groups with poor records have much lower weightings or are excluded.
Based on TPI assessments, Shell and Repsol are included in the index while ExxonMobil, Chevron and BP are not. “Were the latter companies to set emissions targets covering all their emissions that align to the Paris Agreement then the index rules would allow inclusion,” the pension board said.
The TPI is based at the Grantham Institute at the London School of Economics.
The church already excludes a range of direct investments in companies involved in weaponry, pornography, tobacco, gambling, high interest rate lending and human embryonic cloning.
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