New Tool Allows Investors To See Companies’ Climate Change Impacts At A Glance

From the Middle East to the Arctic Circle, 2020 is seeing record temperatures around the world as climate change starts to bite.

As temperatures in the Middle East soar over 120C and the Arctic Circle approaches Mediterranean levels of heat, it has never been more imperative for investors to know how much companies are contributing to climate change.

At the same time, this has always been a difficult thing to ascertain because every company, every sector, every government and region is different. Now, a new rating should allow investors to see at a glance which companies have the most to do to reduce their emissions and which are performing best. They can use this information to assess which companies are worth buying, and if they already own shares in them, which they need to engage with to reduce their emissions.

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The new dataset, developed by research and disclosure group CDP and environmental charity WWF, gives investors temperature ratings for 4,000 global companies, based on the GHG emissions they are responsible for and the amount by which they need to cut them.

The ‘temperature ratings’ not only highlight how companies are performing on cutting carbon but also give investors an insight into the temperature pathway of their portfolios, funds and stock indices.

The first investor to use the rating as part of its ESG analysis will be Amundi, Europe’s largest asset manager.

The CDP temperature ratings dataset provides a temperature pathway for more than 4,000 global companies, based on emission reduction targets covering all the relevant GHG emissions throughout a company’s value chain. This data enables investors to better manage climate transition risk and future-proof their portfolios and funds from the costs of climate change.

Amundi will use the temperature ratings to grow its ESG research capabilities and measure the temperatures of its investment universe, initially for four global multisector equity funds.

The ratings build on a forthcoming protocol developed by CDP and WWF that translates company emissions targets into temperatures. The ratings reflect how much temperatures would rise if global greenhouse gas emissions were reduced at rate of the particular company’s stated target to reduce carbon. The ratings use emissions and target data from CDP’s global disclosure platform.

Such information is important because science dictates that we limit temperature rises to 1.5°C to avoid the worst effects of global warming. Currently, climate action is consistent with limiting warming to 3.2°C by the end of the century, which is likely to have devastating impacts.

“Climate science tells us that we must rapidly decarbonize and achieve net zero GHG emissions by 2050 to avoid the most dangerous effects from climate change. Needing to play their part and drive an economy-wide transition, investors increasingly want to align their portfolios with international climate goals and the economy of the future,” said Emily Kreps, global director, Capital Markets at CDP, said.

“By providing a clear, science-based and uniform standard for companies’ ambition, CDP temperature ratings now allow investors to do that by benchmarking, communicating and reducing the temperature of their portfolios and products. Asset managers must be transparent, and it is good to see Europe’s largest asset manager leading the way”.

Jean-Jacques Barbéris, head of the ESG business line for Amundi’s General Management, added that investors need to back the companies that are supporting a faster transition of our economy to a low-carbon model, and encourage others through targeted engagement to set more ambitious, science-based emissions reduction targets. “By being better equipped, investors can future-proof their investment universe from the impact of climate change and improve corporate dialogue,” he said.

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