̽��ֱ�� of Cambridge - Department of Land Economy

Cambridge research: First global bond index to address fossil fuel expansion

plc32 — Fri, 11 Apr 2025 11:48:40 +0000

This is a critical – and hugely challenging – moment for climate action. Legal and political pressures have paralysed asset managers and other financial service providers, leading to a recent wave of actors leaving investor climate coalitions. However, asset owners are increasingly seeing the need to take a leadership role in addressing climate change, which threatens the long-term future of their portfolios and the wider economy.

That’s why we are delighted to announce that Cambridge researchers based at the Department for Land Economy have selected index provider Bloomberg Index Services Limited to launch the first global corporate bond index to cover fossil fuel producers, utilities, insurance, and financing, with the aim of driving investment to reduce real-economy emissions.

You can read the ̽��ֱ�� press release here.

“We are delighted that this project has reached such a key milestone," said Professor Martin Dixon, Head of the Department of Land Economy. "As a multidisciplinary department with a focus on outstanding academic publication and teaching, this project has the potential to serve as a ‘systems demonstrator’ for ongoing research in this important area.”

Why a bond index?

̽��ֱ��launch of the bond index by an 816-year-old institution is an unusual process and a tale worth telling. It began with a peer-reviewed paper by Dr Ellen Quigley, Principal Research Associate at Land Economy, exploring the case for evidence-based climate impact by institutional investors. This was followed by an internal feasibility study based at Jesus College, Cambridge (which continues to co-host the project), and supported by several other parts of the ̽��ֱ��.

With feasibility assessed, the team went out to global index providers to explore their interest. All of the leading players were interested in building this index, yet all grappled with a lack of access to data and the complexity of assessing companies based on their activities (e.g., whether they were building new fossil fuel infrastructure), not their business classification. An extensive Request for Proposals process resulted in naming Bloomberg Index Services Limited as our provider. ̽��ֱ��project aims to provide a genuine solution for asset owners looking to align their corporate debt instruments with their climate targets and to avoid both ineffective blanket interventions and greenwashing.

̽��ֱ��central problem, on which the industry has faltered for decades, is how to manage the risk presented by a fossil fuel industry that continues to grow. Leading climate scenarios such as the International Energy Agency’s Net Zero by 2050 scenario are clear that fossil fuel expansion is inconsistent with the transition to a decarbonised economy. With approximately 90% of new financing for fossil fuel expansion coming from bonds and bank loans, debt markets must be the focus of investor efforts to transition away from fossil fuel expansionism. Bonds offer a larger pool of capital than equities, and a greater proportion are purchased in the primary market, where companies gain access to new capital.

̽��ֱ��past decade has seen a significant rise in passive investment strategies and therefore an increase in financial flows into index funds, which have as a consequence become significant ‘auto-allocators’ of capital. This research project aims to study the extent to which the new bond index influences cost, volume, and access to capital among companies who are seeking to build new fossil fuel infrastructure and delaying the phase-down of their operations. Bond markets are not just a key part of investor action on climate change: they are the very coalface of fossil fuel expansion, i.e. new gas, oil, and coal extraction and infrastructure.

“This is an enormously impactful project which showcases the high-quality research undertaken at Cambridge," ̽��ֱ�� of Cambridge Chief Financial Officer Anthony Odgers said. " ̽��ֱ��index is a game-changer for the growing number of asset owners who invest in corporate debt and understand its impact on fossil fuel expansion, particularly the construction of new fossil fuel infrastructure such as coal- and gas-fired power plants which risk locking in fossil fuel usage for decades."

“Once the index launches, Cambridge expects to invest some of its own money against financial products referencing it. This will enable us to align our fixed income holdings with our institution-wide objectives,” Odgers said.

There are currently no off-the-shelf products that allow for passive investments in global corporate bond markets without financing fossil fuel expansion, through fossil fuel production, utilities building new coal- and gas-fired power plants, and through the banks and insurers that continue to finance and underwrite these activities. By supporting the development of this ‘systems demonstrator’, we will be able to conduct essential research on the efficacy of such a lever.

“Instead of linear year-on-year reductions or blanket bans by business classification, the index methodology identifies companies that present the greatest systemic risks to investors, while ensuring that those companies that meet the criteria can rejoin the bond index,” said project leader Lily Tomson, a Senior Research Associate at Jesus College, Cambridge.

Several years of close collaboration with leading global asset owners such as California State Teachers Retirement System (CalSTRS), Universities Superannuation Scheme (USS), Swiss Federal Pension Fund PUBLICA and the United Nations Joint Staff Pension Fund (UNJSPF) provided input and technical market expertise that underpins the index. Alongside the ̽��ֱ�� of Cambridge, the index will be used at launch by investments from the United Nations Joint Staff Pension Fund.

“Finally, large asset owners around the world have an index for this market that aims to discourage the expansion of fossil fuels,” said Pedro Guazo, Representative of the Secretary-General (RSG) for the investment of the UNJSPF assets.

Rules-based engagement: a lever for behaviour change

Debt benchmarks have a key role to play in any real efforts to tackle the expansion of fossil fuels. This project is innovative because it focuses on exclusions and weightings of companies based on their current corporate activity, instead of using an approach that relies on blanket exclusions by business classification (which does not generate incentives to change behaviour). For example, a company might be classed as a fossil fuel company, but if it stops expanding new fossil fuel operations and aligns to an appropriate phase-down pathway, the company has an opportunity to be included in the index and gain access to capital via funds which use the index, as a result.

Across the project, we are using data sources that have never previously been used to build an index – for example, the Global Coal Exit List (GCEL) and Global Oil and Gas Exit List (GOGEL) from Urgewald. We are taking a novel approach that focuses investor attention on those actors that our framework considers ‘edge cases’: companies close to reaching, or moving away from, alignment with the index. Companies have the option of being (re-)included in the index if they change their behaviour to align with the rules of the index. Academic literature suggests this is a lever for behaviour change in equities, but as an approach it is new to debt market indices. This is one of many key hypotheses that this project tests. We are convening a community of leading global academics who will support the creation of this new form of rules-based bondholder engagement.

This bond index project is one of a suite of actions rooted in academic research and collaboration that have been developed by the collegiate ̽��ֱ��. Alongside 74 other higher education institutions, Cambridge is delivering a parallel project focused on cash deposits and money market funds. We will continue to conduct research as the associated new products begin to operate through 2025.

At a time when climate damage is growing rapidly and is visible in news stories around the world, many actors across investment markets are looking for a clear path to take necessary action. As an academic institution and a long-term investor, the ̽��ֱ�� of Cambridge is committed to supporting evidence-based research and action on climate change.

̽��ֱ��bond index will be launched later this year. If you are interested in finding out more about the project or the team’s research, contact us here: bondindex@landecon.cam.ac.uk.

̽��ֱ�� of Cambridge researchers based at the Department for Land Economy have selected index provider Bloomberg Index Services Limited to launch the first global corporate bond index to cover fossil fuel producers, utilities, insurance, and financing, with the aim of driving investment to reduce real-economy emissions.

This is an enormously impactful project which showcases the high-quality research undertaken at Cambridge

Anthony Odgers, ̽��ֱ�� of Cambridge Chief Financial Officer

̽��ֱ��text in this work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License. Images, including our videos, are Copyright © ̽��ֱ�� of Cambridge and licensors/contributors as identified. All rights reserved. We make our image and video content available in a number of ways – on our main website under its Terms and conditions, and on a range of channels including social media that permit your use and sharing of our content under their respective Terms.

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Electricity prices across Europe to stabilise if 2030 targets for renewable energy are met

fpjl2 — Mon, 03 Feb 2025 10:24:42 +0000

Hitting the current national 2030 quotas for solar and wind energy could reduce the volatility of electricity markets by an average of 20% across 29 European countries, according to a new study from the ̽��ֱ�� of Cambridge.

̽��ֱ��intensity of spikes in power prices are predicted to fall in every country by the end of the decade if commitments to green energy are met, as natural gas dependency is cut.

̽��ֱ��UK and Ireland would be the biggest beneficiaries, with 44% and 43% reductions in the severity of electricity price spikes by 2030, compared with last year.

Germany could experience a 31% decline in electricity price volatility, with the Netherlands and Belgium seeing price spikes ease by 38% and 33% respectively.

̽��ֱ��simulations conducted for the new study show that scaling up renewable energy minimises the market impact of fluctuations in natural gas price – increasing stability even when considering the reliance of renewable technologies on weather.

Some EU leaders and energy ministers have called for renewables targets on grounds of energy security as well as decarbonisation, particularly since Putin’s war on Ukraine stemmed the flow of Russian gas.

̽��ֱ��study, published in the journal Nature Energy, calculates in detail how such aims would affect the volatility of wholesale electricity prices in energy markets across Europe.

“ ̽��ֱ��volatility of energy prices is a major cause of damage to national economies,” said Laura Diaz Anadon, the ̽��ֱ�� of Cambridge’s Professor of Climate Change Policy.

“Consumers are still reeling from sharp increases in electricity prices brought about by natural gas shortages following Russia’s invasion of Ukraine,” said Anadon. “We show that hitting renewables targets reduce the likelihood of such price spikes in the future.”

Daniel Navia, a researcher with the ̽��ֱ��’s Centre for Environment, Energy and Natural Resource Governance (CEENRG), said: “Meeting renewable energy targets is not only good for carbon neutrality, but we can see it is a boost to economic resilience”

“We had probably underestimated how costly energy price shocks are to our societies, and the last crisis has been a stark reminder.”

̽��ֱ��Cambridge researchers used the ̽��ֱ��’s high performance computing facilities to model a wide range of factors – from fluctuations in weather patterns and energy demands to fuel capacity – to map the current and future grids of all 27 EU nations plus the UK and Switzerland.

They assessed electricity markets in 2030 based on the commitments to renewables as stated in each nation’s national energy and climate plan.

“ ̽��ֱ��UK in particular is projected to see major benefits to its energy market stability from renewables,” said Anadon.

“ ̽��ֱ��UK has struggled with its exposure to gas prices due to a lack of energy storage and limited connections to the European grid. This has led to more hours where electricity prices are set by natural gas.”

̽��ֱ��research also suggests that wholesale prices of electricity could fall by over a quarter on average across all countries in the study by decade’s end if they stick to current national renewables targets.

Again, populations in the UK and Ireland stand to gain significantly, with electricity prices predicted to fall by around 45% by 2030, compared with the current situation.

Several of the Nordic nations could see over 60% reductions in electricity costs by 2030, while in Germany the price is predicted to fall by 34%, with Belgium seeing a similar drop of 31%. ̽��ֱ��study suggests the Netherlands could see the price of electricity fall by 41%.

While the study’s authors caution that trends in electricity prices depend on factors that are “impossible to predict”, they say their results are in line with recent outputs by institutions such as the International Energy Agency.

In fact, Navia and Anadon say their modelling may even underestimate the potential for electricity price stability across Europe, as the projections were calculated using data from 1990-2021 – before the energy crisis created by Russia’s attack on Ukraine.

“It makes sense to think about renewables as a security investment, and if we lose the momentum towards green energy, we are clearly harming the climate, but we also exposing ourselves to unknowable risks down the line,” said Anadon.

̽��ֱ��new study also charts the effects on electricity prices if countries overshoot on renewables. If Europe exceeds its renewable energy goals by 30%, electricity prices could become 50% less sensitive to natural gas, compared to just meeting renewables targets.

However, the study suggests there are tipping points where renewables cause the price of power to fall so far that it stops providing sufficient return on investment, and the green energy industries may stall.

Added Navia: “If we are to fully utilise solar and wind as a security tool, Europe might have to rethink how its energy markets are designed, and what incentives it can offer the private sector to maintain the societal insurance value it gets from renewable energy.”

National targets for solar and wind power will see reliance on natural gas plummet, reducing electricity price volatility across Europe, with major beneficiaries including the UK and Ireland, the Nordics, and the Netherlands.

̽��ֱ��UK in particular is projected to see major benefits to its energy market stability from renewables

Laura Diaz Anadon

Anton Petrus via Getty images

High voltage electricity towers combined with economic charts

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Fish bellies, fava beans and food security

plc32 — Fri, 05 Apr 2024 15:20:27 +0000

Cambridge Zero and Cambridge Global Food Security gather academics and experts to share solutions for the planet’s looming food production problem.

Opinion: Britain needs to clean up its politics by reforming Whitehall and Westminster

fpjl2 — Thu, 01 Feb 2024 10:47:55 +0000

Prof David Howarth, a commissioner on the UK Governance Project, outlines proposals that seek to fix defects in our political system increasingly exploited by those in power.

Religious people coped better with Covid-19 pandemic, research suggests

fpjl2 — Tue, 30 Jan 2024 09:21:15 +0000

People of religious faith may have experienced lower levels of unhappiness and stress than secular people during the UK’s Covid-19 lockdowns in 2020 and 2021, according to a new ̽��ֱ�� of Cambridge study released as a working paper.

̽��ֱ��findings follow recently published Cambridge-led research suggesting that worsening mental health after experiencing Covid infection – either personally or in those close to you – was also somewhat ameliorated by religious belief. This study looked at the US population during early 2021.

̽��ֱ�� of Cambridge economists argue that – taken together – these studies show that religion may act as a bulwark against increased distress and reduced wellbeing during times of crisis, such as a global public health emergency.

“Selection biases make the wellbeing effects of religion difficult to study,” said Prof Shaun Larcom from Cambridge’s Department of Land Economy, and co-author of the latest study. “People may become religious due to family backgrounds, innate traits, or to cope with new or existing struggles.”

“However, the Covid-19 pandemic was an extraordinary event affecting everyone at around the same time, so we could gauge the impact of a negative shock to wellbeing right across society. This provided a unique opportunity to measure whether religion was important for how some people deal with a crisis.”

Larcom and his Cambridge colleagues Prof Sriya Iyer and Dr Po-Wen She analysed survey data collected from 3,884 people in the UK during the first two national lockdowns, and compared it to three waves of data prior to the pandemic.

They found that while lockdowns were associated with a universal uptick in unhappiness, the average increase in feeling miserable was 29% lower for people who described themselves as belonging to a religion.*

̽��ֱ��researchers also analysed the data by “religiosity”: the extent of an individual’s commitment to religious beliefs, and how central it is to their life. Those for whom religion makes “some or a great difference” in their lives experienced around half the increase in unhappiness seen in those for whom religion makes little or no difference.**

“ ̽��ֱ��study suggests that it is not just being religious, but the intensity of religiosity that is important when coping with a crisis,” said Larcom.

Those self-identifying as religious in the UK are more likely to have certain characteristics, such as being older and female. ̽��ֱ��research team “controlled” for these statistically to try and isolate the effects caused by faith alone, and still found that the probability of religious people having an increase in depression was around 20% lower than non-religious people.

There was little overall difference between Christians, Muslims and Hindus – followers of the three biggest religions in the UK. However, the team did find that wellbeing among some religious groups appeared to suffer more than others when places of worship were closed during the first lockdown.

“ ̽��ֱ��denial of weekly communal attendance appears to have been particularly affecting for Catholics and Muslims,” said Larcom.

For the earlier study, authored by Prof Sriya Iyer, along with colleagues Kishen Shastry, Girish Bahal and Anand Shrivastava from Australia and India, researchers used online surveys to investigate Covid-19 infections among respondents or their immediate family and friends, as well as religious beliefs, and mental health.

̽��ֱ��study was conducted during February and March 2021, and involved 5,178 people right across the United States, with findings published in the journal European Economic Review in November 2023.

Researchers found that almost half those who reported a Covid-19 infection either in themselves or their immediate social network experienced an associated reduction in wellbeing.

Where mental health declined, it was around 60% worse on average for the non-religious compared to people of faith with typical levels of “religiosity”.***

Interestingly, the positive effects of religion were not found in areas with strictest lockdowns, suggesting access to places of worship might be even more important in a US context. ̽��ֱ��study also found significant uptake of online religious services, and a 40% lower association between Covid-19 and mental health for those who used them.****

“Religious beliefs may be used by some as psychological resources that can shore up self-esteem and add coping skills, combined with practices that provide social support,” said Prof Iyer, from Cambridge’s Faculty of Economics.

“ ̽��ֱ��pandemic presented an opportunity to glean further evidence of this in both the United Kingdom and the United States, two nations characterised by enormous religious diversity.”

Added Larcom: “These studies show a relationship between religion and lower levels of distress during a global crisis. It may be that religious faith builds resilience, and helps people cope with adversity by providing hope, consolation and meaning in tumultuous times.”

Two Cambridge-led studies suggest that the psychological distress caused by lockdowns (UK) and experience of infection (US) was reduced among those of faith compared to non-religious people.

Getty/Luis Alvarez

People in church praying with covid-19 restrictions

Notes

* ̽��ֱ��increase in the mean measure for unhappiness was 6.1 percent for people who do not identify with a religion during the lockdown, compared to an increase of 4.3 percent for those who do belong to a religion – a difference of 29%.

**For those that religion makes little or no difference, the increase was 6.3 percent. For those for whom religion makes some or a great difference, the increase was around half that, at 3 percent and 3.5 percent respectively.

*** This was after controlling for various demographic and environmental traits, including age, race, income, and average mental health rates prior to the pandemic.

**** ̽��ֱ��interpretation is from Column 1 of Table 5: Determinants of mental health, online access to religion. Where the coefficients of Covid {Not accessed online service} is 2.265 and Covid {Accessed online service} is 1.344. Hence the difference is 2.265-1.344 = 0.921 which is 40% of 2.265.

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A habitable planet for healthy humans

plc32 — Wed, 13 Dec 2023 17:28:42 +0000

Cambridge Zero symposium gathers researchers to examine the connections between planetary and public health.

̽��ֱ��Vice-Chancellor's Awards 2023 for Research Impact and Engagement

zs332 — Wed, 13 Dec 2023 09:20:46 +0000

Meet the winner of the Vice-Chancellor's Awards 2023 for Research Impact and Engagement and learn more about their projects.

Early Career Researcher 2023 - Stephen Ajadi

zs332 — Wed, 13 Dec 2023 08:38:06 +0000

̽��ֱ��joint winner of the Early Career Researcher 2023 is Stephen Ajadi.