As the world continues to struggle with balancing the negative aspects of fossil fuel use with its usefulness, University of Cambridge researchers plan to launch the first global corporate bond index to drive investment toward reducing real-economy emissions.
Specifically, the researchers based at the Department of Land Economy have chosen Bloomberg Index Services Limited (BISL) as the provider of choice for this index, which will include fossil fuel producers, utilities, insurance, and financing, the University of Cambridge said on April 11.
Furthermore, the first global bond index of its kind aims to address climate change that not just threatens the environment but also the long-term future of investors’ portfolios and the wider economy. Commenting on this important development, Professor Martin Dixon, head of the Department of Land Economy, explained:
“We are delighted that this project has reached such a key milestone. (…) As a multidisciplinary department with a focus on outstanding academic publication and teaching, this project has the potential to serve as a ‘systems demonstrator’ for ongoing research in this important area.”
Why a bond index to tackle fossil fuel emissions?
To answer the question of how a bond index could possibly help reduce fossil fuel emissions, we must go back to a peer-reviewed paper by Dr. Ellen Quigley, Principal Research Associate at Land Economy, who explored the case for evidence-based climate impact by institutional investors.
After that, researchers at Jesus College, Cambridge, carried out an internal feasibility study, and several other parts of the University supported the project. Upon this study’s successful completion, the team approached global index providers to assess interest, ultimately going forward with BISL.
The aim of the project, according to the University of Cambridge, is to offer a genuine solution for asset owners seeking to align their corporate debt instruments with their climate targets, as well as to avoid greenwashing and inefficient sweeping interventions.
On top of that, the project’s founders wish to explore the extent to which the new bond index would influence cost, volume, and access to capital among companies looking to build new fossil fuel infrastructure and delaying the phase-down of their operations.
In the words of the University of Cambridge chief financial officer Anthony Odgers:
“The index is a game-changer for the growing number of asset owners who invest in corporate debt and understand its impact on fossil fuel expansion, particularly the construction of new fossil fuel infrastructure such as coal- and gas-fired power plants which risk locking in fossil fuel usage for decades.”
Moreover, as project leader Lily Tomson, a senior research associate at Jesus College, puts it, the “index methodology identifies companies that present the greatest systemic risks to investors while ensuring that those companies that meet the criteria can rejoin the bond index,” thus discouraging the expansion of fossil fuels.
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