The S&P Eurozone Paris-Aligned Climate Index Concept Sensitivity Analysis: Decarbonization over Time

To meet the proposals for CTBs or PABs,[1]—as published by the EU Technical Expert Group (TEG) in its Final Report,[2] —active share[3] and therefore tracking error are uncertain over time,[4] due to the TEG’s absolute decarbonization proposal.[5] This blog assesses the S&P Eurozone Paris-Aligned Climate Index Concept’s (PAC Concept) potential active share sensitivity to future decarbonization, to align with a 1.5 °C scenario.[6] 

Exhibit 1 shows future PAB and CTB trajectories and possible parent index trajectories from 7% decarbonization and 3% carbonization. If in twenty years the parent index carbonizes at 3% year-on-year, a 90% relative carbon reduction will be required for the PAB (hopefully far higher than will be observed).

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