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STOXX® Willis Towers Watson Climate Transition Indices

Innovative index series incorporates the quantifiable climate transition risk of companies as the economy as a whole moves to net-zero

The STOXX Willis Towers Watson Climate Transition Indices (CTI), developed in partnership with Willis Towers Watson, offer a sophisticated and transparent way of managing climate transition risk. The indices leverage Willis Towers Watson’s proprietary Climate Transition Value at Risk (CTVaR) data, which assesses the anticipated impact of a climate transition on company valuations through forward-looking, bottom-up analysis of individual companies.

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Key benefits

Granular

STOXX Willis Towers Watson Climate Transition Indices employ a highly granular analytical approach that goes beyond simple carbon pricing or carbon exposure as a proxy for climate value at risk

Bottom-up

The CTI incorporate Climate Transition Value at Risk (CTVaR), which is calculated by a dedicated team of climate transition experts within Willis Towers Watson’s wider climate specialist team of over 70 members. The team combines commodity modelling with asset-by-asset company models to understand how transition risk (e.g. changes in demand for fossil fuels) impacts company fundamentals and in turn company valuations

Forward-looking

Rather than using backward-looking carbon emissions data, the indices use forward-looking company transition risk that is refreshed regularly

Holistic

The indices consider the wide range of changes needed at system level, such as changes in demand for different goods, services, technologies, and commodities, in order to drive down emissions consistent with the goals of the Paris agreement

Investing for net-zero

Index construction tilts towards companies expected to make key contributions to the transition to a low carbon economy and therefore allow investors to capture positive economic disruption and growth opportunities. Similarly, the indices tilt away from companies expected to be negatively impacted by the transition

Core beta solution

Investors can use the indices as replacements for current broad market-cap weighted allocations or simple ESG metric-based portfolios

Index family

The index family comprises the following indices:

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Index methodology

Starting from broad market universes (iSTOXX World A, STOXX Europe 600, STOXX USA 500), securities are evaluated in terms of predefined sustainability characteristics. Companies identified as non-compliant based on Sustainalytics’ Global Standard Screening (GSS) assessment or companies that are involved in controversial weapons, thermal coal and oil sands are removed from the universe.

The remaining eligible companies are weighted according to their free-float market capitalization adjusted by the Climate Transition Value at Risk (CTVaR) metric calculated by Willis Towers Watson. CTVaR is a proprietary measure that analyzes the impact on projected company cashflows when moving from a ‘business as usual’ scenario – reflecting current policies – to a world where emissions pathways are consistent with the goals of the Paris agreement. In general, the indices tilt away from companies with high exposure to climate transition risk.

The maximum weighting of any stock is limited to 5%, the maximum industry overweight is limited to 5%, the maximum country over- and underweights are restricted to 15%.

Related news & research

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STOXX WTW Climate Transition Indices: Replacing decarbonized portfolios with portfolios for a decarbonized world

At an IPE webinar last month, experts from WTW and Qontigo explained how the STOXX Willis Towers Watson Climate Transition Indices (CTIs) can help investors manage climate transition risk on a forward-looking basis. The audience also heard how this can be achieved without increasing a portfolio’s overall risk.

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STOXX Willis Towers Watson Climate Transition Indices: A comprehensive solution to manage companies’ risk in the economy’s journey to net zero

The STOXX Willis Towers Watson Climate Transition Indices (CTIs) are an innovative new family of indices designed to manage climate transition risk through a forward-looking, bottom-up analysis of the impact on company valuations from moving to a low-carbon economy. The indices help address risks and opportunities arising from climate transition in a transparent, systematic way and result in portfolios consistent with the Paris Agreement goals.

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Climate Transition Indices – A risk profile analysis

A new Qontigo whitepaper analyzes the risk characteristics and factor exposures of the STOXX Willis Towers Watson Climate Transition Indices (CTIs). The study helps investors understand the implications of a portfolio that is aligned with the goals of the Paris Agreement and that manages the risks and opportunities from moving to a low-carbon economy.

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Climate transition indices launched with Willis Towers Watson

The STOXX Willis Towers Watson Climate Transition indices were developed in close collaboration with Willis Towers Watson (WTW) incorporating their proprietary Climate Transition Value at Risk (CTVaR) data.

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A view from COP26: navigating the climate transition with investable indices

A panel at COP26 comprised of sustainability and index experts, including members of Willis Towers Watson and Qontigo, explains how the STOXX Willis Towers Watson Climate Transition Indices (CTIs) help investors manage climate-transition risk and align their investments for the economic transition to net zero.

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Flexible approach in use of ESG data is key driver in advancing sustainability indices

Variety in ESG data can enrich investment strategies and provide an edge in performance. Qontigo’s open-architecture approach is to find and leverage the most robust sustainability information available, with no limitation to any single provider, for each investing case.

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Panel of experts discusses the why and the how of net-zero investing

One of the panels at the Sustainability & Impact Investor Forum in Monaco last month drew from the perspectives of active fund management, asset-owner and indexing specialists, who discussed the key drivers and approaches to incorporate the transition to net zero into investment portfolios.

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Podcast: Index tracking does not equal passive

Arun Singhal, joined The Podfolio podcast to discuss index investing, and the emergence of smart beta strategies that blur the line between active and passive approaches.

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Q&A with WTW’s David Nelson: Managing a portfolio’s climate transition risk with a forward-looking focus 

“Counting molecules of carbon is the essential first step to tackling climate change, but it’s only the start,” says the director at WTW’s Climate and Resilience Hub. He explains why investors should focus on a company’s current climate-transition risk by understanding what the impact will be on its future cash flows.

Benchmarks

STOXX European Benchmarks — The Gateway to an Entire Region STOXX European Benchmarks — The Gateway to an Entire Region

STOXX is synonymous with equity indexing in Europe. The STOXX® Europe 600 Index, EURO STOXX® Index and EURO STOXX 50® Index have for over 20 years provided liquid and effective access to the region’s stock market, based on transparent rules and an objective methodology.