May 21, 2024

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Integrating climate considerations in sovereign debt | Insights

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The chart displays two pillars of the scores and the performance of each country in blue. The red cross signifies the weighted score of the Bloomberg Global Treasury index, while the several green crosses illustrate a range of implementation options for a climate-aware sovereign debt portfolio.  By increasing the tilt strength, we can control the degree to which we overweight the leading countries (those in the upper right quadrant) like France, Canada and the UK.

This flexible tilting approach is also utilized by the recently launched Bloomberg Government Climate Tilted Bond index family. These indices focus on a single, clear objective: tilting country weights based on preparedness to achieve Paris Agreement goals. The resulting index not only achieves a reduction in emissions intensity versus the parent, but also supports the real-world transition by directing flows towards governments with tangible plans to decarbonize their economy.

In addition to adjusting tilt strength, investors can target specific outcomes through optimization, such as a specific CO2 intensity reduction, or a desired uplift in power generation from renewables. Moreover, country inclusion can be altered using thematic exclusions and weights can be capped for diversification. In each case, the resulting portfolios are backed with a robust, transparent, and proprietary climate score through GOVS.

Stay on pace with the race to Net Zero

The Bloomberg Government Climate Scores (or ‘GOVS’) and the Bloomberg Government Climate Tilted Bond Indices provide investors with tools to drive investments towards countries best prepared to meet global climate goals. We will expand further on this topic in a forthcoming white paper, investigating approaches to portfolio construction using the scores in more detail. Terminal users can access the Bloomberg Government Climate Scores through GOVS <GO> and the Bloomberg Government Climate Titled Bond Indices through IN ESG <GO>.

The data and other information included in this publication is for illustrative purposes only, available “as is”, non-binding and constitutes the provision of factual information, rather than financial product advice. BLOOMBERG and BLOOMBERG INDICES (the “Indices”) are trademarks or service marks of Bloomberg Finance L.P. (“BFLP”). BFLP and its affiliates, including BISL, the administrator of the Indices, or their licensors own all proprietary rights in the Indices. Bloomberg L.P. (“BLP”) or one of its subsidiaries provides BFLP, BISL and its subsidiaries with global marketing and operational support and service. 

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