Financial entities STOXX and ICE introduce a fresh collection of bond indices, tailored to align with the goals set forth in the Paris Agreement on climate change.

New STOXX ICE Fixed Income Sustainability Indices Launched to Address Growing Demand for Sustainable Investing

In a significant move to cater to the increasing demand for sustainable investment products in the bond market, market index provider STOXX and financial technology and data services provider Intercontinental Exchange (ICE) have announced the launch of the STOXX ICE Fixed Income Sustainability indices.

The collaboration between STOXX and ICE brings together two leading financial companies and skill sets to launch and operate a suite of indices that address the growing demand for sustainable investment products. The new indices are designed to integrate environmental, social, and governance (ESG) criteria into fixed income benchmarks, with specific features and criteria that promote sustainable investing and alignment with climate goals, including those of the Paris Agreement.

Key Features and Criteria of the STOXX ICE Fixed Income Sustainability Indices

The indices include securities that pass ESG compliance, involvement, and performance screens, selecting issuers with high ESG rankings within their sectors to improve the sustainability profile of the index relative to the parent benchmark. They exclude issuers involved in activities considered undesirable from a responsible investing perspective, such as controversial weapons or severe norm breaches.

Some STOXX ESG indices use optimization techniques to maximize ESG scores while maintaining diversification and benchmark exposure, controlling tracking errors. The indices apply carbon emissions intensity screens and are aligned with transition-focused metrics relevant to net-zero goals. Related STOXX climate benchmarks follow standards outlined by the European Commission’s climate benchmarks regulation, emphasizing net-zero transition and Paris-aligned objectives.

The securities selected in the ESG+ indices are drawn from every industry group to maintain broad sector representation while improving the ESG profile. The indices aim for a minimum 'green-to-brown' revenue ratio. They include screens to exclude companies based on global norms, product involvement, controversies, and activities that hinder certain UN Sustainable Development Goals (SDGs).

Alignment with the Paris Agreement Climate Goals

The STOXX sustainability indices incorporate climate benchmarks like the STOXX Global 1800 Paris-Aligned Benchmark (PAB) and the STOXX Global 1800 Climate Transition Benchmark (CTB), which adhere to regulatory standards designed specifically to support real-world decarbonization and the transition towards net-zero emissions consistent with the Paris Agreement.

These climate benchmarks measure and manage exposure to carbon-intensive industries and prioritize issuers demonstrating transition readiness and reduction in carbon footprint, thereby aligning index composition with the temperature goals and emission reduction pathways under the Paris Agreement. The CTB criteria also include 7% annual decarbonization, and a 30% minimum reduction in GHG emissions intensity relative to the market index.

The Future of Sustainable Fixed Income Investing

The new indices are aimed at enabling investors to align their investments with the Paris Agreement climate goals. The new benchmarks include investment grade indices in currencies such as U.S. dollars, euros, and sterling, as well as high-yield bond indices in dollars and euros.

Axel Lomholt, General Manager at STOXX, stated that the collaboration with ICE Data Indices will accelerate the delivery of fixed income benchmarks tailored to market demand. Chris Edmonds, President of ICE Fixed Income and Data Services, stated that the collaboration combines STOXX's sustainability data and methodologies with ICE's leading fixed income pricing, reference data, and index calculation solutions. STOXX, which developed the indices, will provide proprietary data and oversee the administration of the indices, while ICE will be responsible for pricing, reference data, and index calculation services for the new indices.

In summary, the STOXX ICE Fixed Income Sustainability indices select fixed income issuers based on rigorous ESG criteria, carbon intensity screening, and compliance with responsible investment norms, while employing optimization techniques to enhance ESG profiles without compromising benchmark fidelity. Their climate benchmarks explicitly support alignment with the Paris Agreement through transition-focused metrics and regulatory standards, helping investors achieve sustainable fixed income exposure consistent with global climate goals.