Aggregate emissions are still rising for key equity market benchmarks, but indexes are becoming less carbon-intensive, according to research by the London Stock Exchange Group (LSEG).

In absolute terms, emissions in global equity benchmarks have yet to peak, with emissions for the FTSE All World index expanding at a 4% CAGR in 2016-2023 to 13 billion tonnes CO2 equivalent.

Over the same period, portfolio carbon intensity gradually declined, with the FY2023 Weighted Average Carbon Intensity 26% lower in equities and 20% in fixed income.

Absolute emissions have declined slowly in fixed income – at –1% per annum for the FTSE WorldBIG Corp index – partly because benchmarks for the sector haven’t seen a comparable shift toward greater emerging markets.

The Decarbonisation in Portfolio Benchmarks 2025 report is the fourth in a series developed in partnership with the Net Zero Asset Owners Alliance (NZAOA), a member-led initiative of 88 institutional investors representing US$9.5 trillion AUM committed to transitioning their portfolios to net zero GHG emissions by 2050.

The report included attribution analysis showing that year-on-year fluctuations in portfolio intensities are still mostly influenced by non-carbon factors, such as normalisation and allocation effects. However, changes in emissions intensity does appear to be driven by real-world corporate emission reductions in sectors such as utilities.

It also noted that, with green bonds now representing ~5% of investment-grade bond universe, their treatment is increasingly important in portfolio emissions calculations.

“Different treatments of green bonds in portfolio emissions calculations, including discounting and use-of-proceeds modelling, can lead to materially different results that are large enough to shift portfolio intensity,” the report said.

A total of 65% of FTSE All-World constituents are now setting long-term climate targets, an eightfold increase since 2018, though the pace of new commitments has slowed since 2021.

FY2024 disclosures show that all the world’s top ten asset managers and half of the top ten pension funds now report on their portfolio emissions.

“Portfolio emissions calculations can seem straightforward, but unpacking what these numbers mean in practice can be challenging. It requires a nuanced understanding not only of emissions trends, but also how they interact with financial factors and portfolio composition in key investment benchmarks,” said Jaakko Kooroshy, Global Head of Sustainable Investment Research, LSEG.

US-based investment manager T Rowe Price has launched a bond fund aimed at bolstering the blue economy across emerging markets, in partnership with the International Finance Corporation (IFC), with initial commitments totalling US$200 billion.

According to T Rowe Price, the Emerging Markets Blue Economy Bond Strategy will invest in corporate bonds issued by both financial institutions and real-economy companies in emerging markets that meet Blue Impact Investment Guidelines, developed jointly with the IFC, a member of the World Bank Group.

These investments will support projects including marine ecosystem conservation, wastewater treatment, coastal climate adaptation, and clean water infrastructure, added the manager, which has US$1.73 trillion AUM.

As well as the IFC, funding has been secured from Xylem Inc, a global water solutions company, and Builders Vision, a group of investors and philanthropists focused on accelerating solutions in the food and agriculture, energy and ocean sectors.

The strategy is aligned with UN Sustainable Development Goals 6 and 14, which target clean water and healthy marine habitats, and is classified under Article 9 of Europe’s Sustainable Finance Disclosure Regulation.

The blue economy, which includes sustainable use of ocean and freshwater resources, is projected to reach US$3 trillion by 2030 by the Organisation for Economic Co-operation and Development.

However, water scarcity is an increasing threat to sustainable development globally and a material threat to businesses and their investors across multiple sectors. Further, ocean ecosystems have been damaged by climate, pollution and over-exploitation, resulting in widespread deterioration of natural habitats as well as negative impacts for dependent economic sectors.

“With T Rowe Price’s established track record in emerging market debt and strong relationships with key stakeholders, this strategy is well positioned to accelerate the issuance of blue bonds. We look forward to seeing how it helps unlock the deeper institutional participation needed to transform the space,” said Noelle Laing, Chief Investment Officer, Builders Vision.

A global agreement aimed at increasing protection of marine environments and boosting the sustainable ocean economy moved closer to ratification last week when the UK government introduced legislation translating it into domestic law.

Following the UN Ocean Conference hosted by France in June, 54 countries have fully ratified the High Seas Treaty; 60 are needed for it to enter into force.

Earlier this month, the First Sentier MUFG Sustainable Investment Institute announced plans to develop a high-level decision-making framework to help institutional investors integrate ocean-based considerations into their strategies.

In the first six months of the year, sustainable funds posted a median return of 12.5%, ahead of traditional funds’ 9.2%, due to the former’s greater exposure to investments in Europe and elsewhere globally.

The outperformance by sustainable funds was reported in an analysis of Morningstar data by the Morgan Stanley Institute for Sustainable Investing, released this week.

After underperforming in the second half of 2024, sustainable funds’ H1 2025 returns mark their strongest period of outperformance since the institute began tracking data in 2019.

Assets under management (AUM) in sustainable funds grew to a new high of US$3.92 trillion as of 30 June, up 11.5% from December 2024, the report said.

First-half inflows to sustainable funds totalled US$16 billion, as assets added in the second quarter more than offset small outflows in the Q1 2025. However, this is tracking below prior years’ and traditional funds continue to see stronger inflows.

While 70% of sustainable funds invest either in Europe or globally, only 41% of traditional funds do, investing more heavily in the Americas and Asia Pacific. In the first half 2025, sustainable funds outperformed within most regions, and across all asset classes. Geographical differences in performance were particularly pronounced for fixed-income funds, the report added.

Over a longer period, sustainable funds have outperformed traditional funds. Investing a hypothetical US$100 into a sustainable fund in December 2018 would equate to US$154 today, while investing US$100 into a traditional fund over the same period would equate to US$145 today, according to the institute.