There has been an explosion in climate-aware index investing as investors respond to both regulatory and financial risks from climate change by replacing market-cap indices with new climate benchmarks in their passive portfolios. There is no universally accepted metric for assessing company or portfolio climate risk, making climate index-creation subjective and opaque. This observation is being picked up in recent academic research and comments from the regulator.

The evolving nature of climate science, policy and data availability means that delivering a systematic portfolio aiming for Paris-alignment requires climate specialist expertise, oversight and accountability. Systematic annual decarbonisation is not a robust standalone proof statement for 'Paris Alignment'. Climate benchmarks fail to appropriately manage the risks and offer the opportunities associated with the transition to a Paris aligned economy, and even introduce new, unexpected sources of risk. There is no such thing as passive Paris alignment.

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