That matters for the Apac region, where climate investing remains less mature than in Europe but is moving beyond its early stage. Lieblich says adoption has broadened across the region over the past few years, with climate benchmarks increasingly used not just as investment tools but also as a way for asset owners to understand how climate strategies work.
The way he sees it, benchmarks serve an education role because they reflect a rules-based investment strategy. They also function as an underlying for products ranging from segregated mandates to exchange-traded funds (ETFs), offering investors a cost-effective way to deploy capital.
Singapore is among the more developed markets in the region, Lieblich says, alongside Australia and New Zealand. In addition, Taiwan and Japan are advanced adopters, while China remains a market of interest because of its regulatory push and its separate 2060 climate timetable.
The bigger change is in the benchmarks themselves, as climate indexes have evolved over the past decade, from low-carbon portfolios focused mainly on reducing emissions exposure, to Paris-aligned benchmarks aimed at year-by-year decarbonisation, and now to a third generation built more around transition.
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That latest shift is meant to move climate investing beyond exclusion and closer to financing change in the real economy. “It’s much more inclusive now,” Lieblich says, adding that it is much less a theoretical exercise.
Some of the older approaches have their flaws. “You decarbonise your portfolio on your spreadsheet, but it has no impact on the real-world economy,” he says. “For the real-world economy to transition to a low-carbon economy, you have to finance the transition.”
That means portfolios may still include higher-emitting companies, including brown energy names, provided they have credible plans, targets and reporting processes in place. In practice, this reflects a broader move by investors from simple exclusions towards backing companies seen as capable of transitioning.
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This is where climate benchmarks can become more useful as engagement tools because they are rules-based and transparent, such that companies can see which metrics affect their index weightings and what they need to improve to attract more capital.
According to MSCI, its Climate Change Indexes are designed to reduce greenhouse gas intensity, increase exposure to climate solutions providers and deliver annual decarbonisation of 7% from the June 2021 base date. The indexes are also meant to be broad, diversified and replicable, with limited exclusions and multiple use cases, including asset allocation, performance benchmarking, financial instruments and engagement.
Lieblich says investors in Apac are using both standard and customised versions of these indexes. Standard benchmarks benefit from a broader ecosystem of users, products and derivatives, while customised versions allow asset owners to reflect specific responsible investment policies or tracking-error constraints.
The next stage, he says, will go beyond using carbon footprint as a rough proxy for transition risk. More granular frameworks are now emerging that assess whether a company is ready to transition, whether it has the necessary technology, targets and policies, and whether it is under pressure from shareholders or regulators to move faster.
At the same time, physical risk is moving up the agenda. Lieblich emphasises that both transition and physical risks are relevant today. That view is reinforced by What the market thinks: How global insurers are responding to rising physical risk, a report by MSCI Institute. The report says 88% of insurers surveyed expressed moderate to very high concern about physical risk creating systemic financial risk, while 96% flagged high concern over the long-term insurability of infrastructure in vulnerable regions. It also says Apac insurers lag Europe in integrating physical risk into broader risk-management frameworks, even as concern levels remain high.
The report adds that catastrophe models based on historical data are becoming less reliable as hazards intensify, prompting insurers to adopt a “layered” approach using geospatial analytics, terrain data and more localised hazard information. That is broadly in line with Lieblich’s view that future climate benchmarks will need to combine transition risk and physical risk, and do so on shorter time horizons that investors can act on.
For Lieblich, the challenge is to keep those products practical. Climate indexes, he says, must remain investable, replicable and tied to robust data. That is especially important in climate, where disclosure gaps remain common and methodologies need to be stable enough for investors to use over time.
