London Stock Exchange Group and Japan Exchange Group to implement new climate indices
London Stock Exchange Group (LSEG) and the Japan Exchange Group (JPX) broaden their partnership by implementing climate indices based on TOPIX 500, which provides diversified exposure to the Japanese stock market.
the index division of LSEG, FTSE Russell, JPX and the Tokyo Stock Exchange (TSE) are working together to introduce the FTSE / JPX Net Zero Index Series during the first half of 2022. The series of indices will follow the EU Reference Standards for Climate Transition (CTB).
The requirement for these types of solutions is pretty clear, the ad notes. FTSE Russell’s 2021 Sustainable Investing Survey of Asset Owners released in October 2021 found that more than two-thirds (68%) of APAC asset owners are starting to prioritize climate change issues and more than half are âvery concernedâ about climate risk.
The FTSE / JPX Net Zero Index Series aim to align with net zero by 2050 by applying index tilts to the market capitalization-weighted adjusted TOPIX 500 to achieve a 30% reduction in total carbon emissions and fuel reserves fossils and a significant increase in exposure to the green economy. As mentioned in the update, indices can be used as a basis for passive fund allocation, as a benchmark for actively managed funds or to guide investment research.
In addition, the indices will integrate Management quality of the Transition Pathway Initiative (TPI) scores that measure the integration by a company of the implication of climate change in its overall business strategy.
The scores would be used to increase exposure to companies that may show a greater level of readiness for a low carbon transition. TPI is reportedly backed by more than 100 major asset owners with $ 40 trillion in assets under management.
TPI Management Quality scores are based on suggestions from the Taskforce for Climate Related Financial Disclosures (‘TCFD’). The FTSE ESG data model provides TPI management quality scores for more than 1,300 Japanese companies.
David Schwimmer, CEO of LSEG, said:
âAs governments currently negotiate here in Glasgow, we, the private sector, can take action to accelerate the transfer of funds needed to finance the climate transition. This partnership with JPX offers investors important new tools to enable a reallocation of capital in the Japanese equity markets. Climate indices such as the FTSE / JPX Net Zero Index Series will give investors the opportunity to align their exposure to the 2015 Paris Agreement using the TOPIX 500.
Akira Kiyota, Director, Executive Representative, CEO of JPX Group said:
âIn July 2018, the London Stock Exchange Group and JPX agreed to collaborate in the area of ââsustainable investing and product marketing around ESG-related products and services. In this context, we are very pleased to announce that FTSE Russell and the Tokyo Stock Exchange will lead the collaborative development of a new environmental index. Reducing greenhouse gas emissions to prevent global warming is an issue that must be addressed beyond national borders, by both the public and private sectors. We hope to be able to support these initiatives through the new index.
JPX and LSEG, as partner exchanges of the United Nations (UN) Sustainable Stock Exchanges (SSE) initiative, are committed to supporting sustainable investing.
LSEG and JPX confirmed in 2018 that they will identify and work on financial market infrastructure projects to promote sustainable investment and product marketing efforts.
In October 2021, the London Stock Exchange would have become the first stock exchange to introduce climate reporting guidelines to its listed companies, based on the SSE Model Climate Reporting guidelines.
The framework is expected to help issuers navigate climate disclosure, associated engagement with their shareholders, and also improve the climate data available to the investment and finance community.
JPX supports listed companies in their voluntary efforts to disclose ESG information, including through the publication of the Practical Handbook for ESG Disclosure and the introduction of the JPX ESG Knowledge Hub.
Regarding climate change, JPX has set itself the objective of converting the energy used by the Group into renewable energy by 2024 and achieving carbon neutrality. JPX took its first steps towards that goal last month by taking appropriate action at its major office buildings, including switching power contracts, which could reduce CO2 emissions by 27% year-on-year.
The launch of updated climate transition indices for the Japanese market is part of LSEG’s commitment as a founding member of the Alliance of Net Zero Financial Services Providers, which aims to support the transition to a net zero financial services system.