The Earth is warming at an alarming rate. Since the start of the industrial revolution, the global average temperature has risen by more than 1°C, largely due to greenhouse gas emissions such as CO₂. This increase is causing profound changes in the climate: more extreme weather events, rising sea levels, loss of biodiversity, and growing pressure on ecosystems and communities worldwide. The consequences affect not only the environment but also the health, safety, and economic stability of people across the globe. Climate action is no longer a choice—it is a necessity.
The Key Players
Financial institutions, consumers, producers, and governments all play a role in limiting global warming. However, governments play a pivotal role in achieving climate goals; they set the pace of the climate transition through legislation, subsidies, tax measures, and public investments. They create the policy framework within which businesses and citizens operate.
Climate Policy Influences Economic Stability
Strong climate policy can lead to lower climate risks, better creditworthiness, and more stable economic prospects. Weak policy, on the other hand, increases the likelihood of natural disasters (such as floods) and transition risks (such as stranded assets), which directly impact a country’s budget and debt position. Poor climate policy doesn’t stop at national borders—it has cross-border effects and long-term consequences, impacting future generations.
As sustainable investors, we must look beyond traditional risk-return thinking. Climate policy touches on fundamental values such as justice, livability, and intergenerational responsibility. By directing capital toward countries that show leadership in the climate transition, we contribute not only to a more stable economy but also to a more sustainable world.
By investing in countries with strong climate ambitions and policies, investors can help accelerate the global transition to a low-carbon economy.
What Can Investors Do?
In sustainable investing, we consider climate aspects when selecting companies for portfolios, and also in our voting and engagement policies—we hold companies accountable for their responsibilities. However, in our sovereign bond investments, we currently take climate policy into account only to a very limited extent.
That’s why we developed the Climate Collective Transition Index. This innovative index reweights sovereign bonds based on countries’ climate policies and performance. The goal is to direct capital toward countries that demonstrate leadership in the climate transition and to hold them accountable.
Sovereign Bonds as a Financing Tool for the Climate Transition
Governments use sovereign bonds to raise capital for their expenditures, including investments to mitigate climate change and protect against its impacts. Through these bonds, investors can contribute to financing the transition—provided they have insight into countries’ climate policies and performance.
Traditionally, the sovereign bond market offered limited opportunities to integrate climate goals, whereas equity investors could already steer based on companies’ CO₂ targets. A key reason was the lack of data on countries’ climate actions and the integration of that data into investment strategies. This product breaks that barrier:
How Does It Work?
The index is based on the ASCOR dataset, a scientifically grounded assessment of countries’ climate ambition, policy, and evidence of greenhouse gas reduction. The index ranks countries on climate performance using the Climate Collective Transition Ranking. FTSE Russell uses these scores to reweight a traditional sovereign bond index toward countries demonstrating climate action. Dutch asset manager Robeco has introduced an actively managed ETF that follows this index while aligning risk and return with the market.
The ASCOR methodology provides a scientific framework to assess countries on:
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