Cambridge, UN pension scheme back novel climate-focused bond index

Reuters

11-04-2025

Summary
Up to $750 million to be invested to track the index
Strips out companies driving fossil fuel expansion
CalSTRS, USS among those to advise on methodology
LONDON, April 11 (Reuters) - Cambridge University and the U.N. pension scheme will move up to $750 million of their investments to track a novel bond index that will exclude or limit exposure to companies helping to expand production of climate-damaging fossil fuels, executives told Reuters.
While some investors have already cut exposure to the stocks of companies involved in the oil and gas sector, most of the money bank-rolling the expansion of fossil fuel production comes from loans and bonds, many issued by private or state-owned firms.
"Those decisions are the critical ones," said Anthony Odgers, the university's chief financial officer. "The key thing is that... you've got to think about the bond and bank markets rather than the equity market."
While existing bond indexes allowed you to exclude the oil and gas sector as a whole, none allowed you to exclude a company based on what it was doing to expand production, he said. The OECD put global corporate debt at $35 trillion at the end of 2024.
To align their fixed income holdings with the world's aim of limiting global warming to well-below 2 degrees above the pre-industrial average, Cambridge developed the index methodology with technical help from a group of asset owners.
As well as the U.N. pension scheme, others involved included the California State Teachers' Retirement System (CalSTRS), Britain's Universities Superannuation Scheme and the Swiss Federal Pension Fund PUBLICA.
Investing in the index would be of particular help to those smaller asset owners who are keen to align with the world's climate goal but which have fewer resources to track companies' climate performance, said Pedro Guazo, who oversees investments at the United Nations Joint Staff Pension Fund.
At launch, Cambridge will move up to 200 million pounds ($261.28 million) in corporate bond holdings to track the index, while the U.N. fund will move up to $500 million.
As well as assessing the actions of issuers in the oil and gas sector, the index will also look at the lending practices of major banks and the underwriting policies of insurance companies.
Lily Tomson, Senior Research Associate at Jesus College, who led the project, said excluded companies could return if their activities change, and that the ability to engage with companies over their inclusion was a "key lever" for investors.
Due to be launched by Bloomberg Index Services Limited, details of the constituents in the Bloomberg Cambridge University fixed income index were not disclosed.