Cambridge University bond index research project

Halting new investments in fossil fuel infrastructure and production is crucial to staying below the 1.5°C or even 2°C temperature targets. Approximately 90% of new financing for fossil fuel expansion comes from loans and bonds, making debt one of the most impactful levers for investors. Bond indices, in particular, play a key role in assigning new capital to companies that are out of line with the scientific and policy consensus. Using leading research from the University of Cambridge, we are supporting the development of a corporate bond index that could contribute to increasing the cost of capital of new fossil fuel projects and driving decarbonisation across the global economy. This is the first index to span the entire fossil fuel value chain (producers, utilities, and financing), with the aim of addressing real economy emissions. We are developing a broad-based index which takes a nuanced approach to corporate sectoral and regional alignment, and incorporating novel data sources, underpinning an index methodology that fuses debt denial and engagement strategies based on academic evidence. Notably, companies can be welcomed back into the bond index if they change their approach: no company is beyond redemption. Oversight for the index will be provided by a group of prominent academics from around the world, pioneering a new form of engagement.

Publication

The University of Cambridge Corporate Bond Index project is based on research undertaken by Dr Ellen Quigley.

Click here to read Dr Quigley's article 'Evidence-based climate impact: A financial product framework', which was published in Energy Research & Social Science in November 2023.

Finance for Environmental and Social Systemic Change have launched a new report 'Climate on the bench: corporate bond benchmarks as a tool for institutional investors'. The report was a collaboration with the Intellectual Forum at Jesus College, Cambridge, and is based on the first survey covering the intersection between climate, corporate bonds, and index use.

The report, which launched on Monday 14^th October, comprises:

A Foreword by Hiro Mizuno
The report - 'Climate on the bench: corporate bond benchmarks as a tool for institutional investors'
A guide to benchmarking - 'Bound to the benchmark: a guide for asset owners in the context of climate change'
The Methodology

Institutional asset owners are increasingly recognising the importance of corporate bonds in driving new capital toward the transition, and the extent to which benchmark choice determines the scope of action. ‘Climate on the bench: corporate bond benchmarks as a tool for institutional investors’ by Finance for Systemic Change at the University of Cambridge, with support from Jesus College Cambridge, is the first survey covering the intersection between climate, corporate bonds, and index use. It is based on desk research on 309 major global asset owners, a survey of 65, and interviews with 11 Heads of Fixed Income. The project explores key challenges that asset owners are facing in implementing their climate commitments for corporate bond investments, and in using benchmarks as a tool for doing so. We also share examples of solutions that asset owners have found.
The project also includes 'Bound to the benchmark: A guide for asset owners in the context of climate change', a guide to navigating the language related to benchmarks. The guide explores the dilemmas many asset owners are facing: developing benchmarks which align with their intended climate trajectory while not breaking the tracking error budget, and maintaining coherence across asset classes while reflecting the different characteristics and possibilities of each asset class.