FTSE Russell launches climate inflation-linked index

Inflation-linked securities market across the world has grown to $4trn

Index and data provider FTSE Russell has launched a climate risk-adjusted government bond index for the inflation-linked market.

The group said the market cap for inflation-linked securities across the world has grown to $4trn, an increase of $1.2trn over two years. It also noted that market expectations for a global economic recovery from Covid-19 may drive inflationary pressures in the near term.

As a result, FTSE Russell has broadened its climate range to the ‘linkers’ market with the launch of the FTSE Climate Risk-Adjusted World Inflation-Linked Securities Index Series.

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The index is comprised of inflation-linked government bonds with fixed-rate coupon payments that are linked to a consumer price index, measuring the performance of debt from 13 countries denominated in their respective local currencies. It measures the performance of inflation-linked fixed-rate, local currency, investment-grade sovereign bonds based on eligibility of the FTSE World Inflation-Linked Securities Index (WorldILSI) and adjusts for climate risk.

It also incorporates a tilting methodology that adjusts index weights according to each country’s relative climate risk performance. For example, the index tilts towards government markets that demonstrate a greater degree of resilience to the risks of climate change.

Scott Harman, global head of fixed Income product management at FTSE Russell, commented: “Government bond investors face several significant risks to the long-term performance of portfolios, including climate risk and inflation risk. Yet, investors have faced no index solution that simultaneously seeks to address these risks in what is a multi-trillion-dollar market. Our new index combines FTSE Russell’s leading position in the global linkers market with its innovative climate risk-adjusted government bond market indexes.” 

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Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...