London Stock Exchange Group and Japan Exchange Group to Implement New Climate Indices

London Stock Exchange Group (LSEG) and the Japan Exchange Group (JPX) are expanding their partnership by implementing climate indices based on the TOPIX 500, which offers diversified exposure across Japan’s stock market.

LSEG’s index division, FTSE Russell, JPX and the Tokyo Stock Exchange (TSE) are working cooperatively to introduce the FTSE/JPX Net Zero Index Series during H1 2022. The index series will follow the applicable EU’s Climate Transition Benchmark (CTB) standards.

The requirement for these types of solutions is quite clear, the announcement noted. FTSE Russell’s 2021 Sustainable Investment survey of asset owners published in October 2021 revealed that more than two-thirds (68%) of APAC asset owners are starting to prioritize climate change issues and more than half are ‘very concerned’ about climate risk.

The FTSE/JPX Net Zero Index Series will aim to align with net zero by 2050 by applying index tilts to the market cap weighted adjusted TOPIX 500 in order to hit a 30% reduction in total carbon emissions and fossil fuel reserves and a considerable uplift in exposure to the green economy. As mentioned in the update, the indices may be used as the basis of passive fund allocation, as a benchmark for actively managed funds, or to guide investment research.

Additionally, the indices will integrate Transition Pathway Initiative (TPI) Management Quality scores which measure a firm’s incorporation of climate change implication into their overall business strategy.

The scores are reportedly used to increase exposure to firms that can show a greater level of preparedness for a low-carbon transition. The TPI is reportedly backed by more than 100 major asset owners with $40 trillion in AUM.

TPI Management Quality scores are based on the suggestions of the Taskforce for Climate Related Financial Disclosures (‘TCFD’). The FTSE ESG data model offers TPI Management Quality scores for more than 1300 Japanese firms.

David Schwimmer, CEO, LSEG, stated:

“While governments are currently negotiating here in Glasgow, we in the private sector can take action to accelerate the shift in the funds required to finance the climate transition. This partnership with JPX provides investors with important new tools to enable capital reallocation in Japanese equity markets. Climate indices such as the FTSE/JPX Net Zero Index Series will give investors the ability to align their exposure with the 2015 Paris Agreement using the TOPIX 500.”

Akira Kiyota, Director, Representative Executive Officer, Group CEO of JPX remarked:

“In July 2018, London Stock Exchange Group and JPX agreed to collaborate in the sustainable investment field and on product marketing around ESG-related products and services. Under that framework, we are very pleased to announce that FTSE Russell and Tokyo Stock Exchange will carry out collaborative development of a new environmental index. Reducing greenhouse gas emissions to prevent global warming is an issue that must be addressed across 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 in the United Nations (UN) Sustainable Stock Exchanges (SSE) initiative, are committed to supporting sustainable investment.

LSEG and JPX confirmed in 2018 that they will identify and work on financial market infrastructure projects for promoting sustainable investment and on product marketing efforts.

In October 2021, the London Stock Exchange reportedly became the first exchange to introduce climate reporting guidance to its listed firms, and did this based on the SSE Model Climate Reporting guidance.

The framework should assist issuers with navigating climate disclosure, associated engagement with their shareholders, and also improve the climate data available to the investment and finance community.

JPX is supporting listed firms in their voluntary efforts to disclose ESG information, including via publication of the Practical Handbook for ESG Disclosure and the introduction of the JPX ESG Knowledge Hub.

On climate change, JPX has reportedly set a target to switch energy used by the Group to renewable energy by 2024 and reach carbon neutrality. JPX took its initial steps towards this objective last month by taking appropriate measures at its main office buildings, including switching electricity contracts, which may lower CO2 emissions by 27% YoY.

The launch of updated climate transition indices for the Japanese market is in line with LSEG’s commitment as a founding member of the Net Zero Financial Services Providers Alliance, which aims to support the transition to a net zero financial services system.

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