As investors are looking to align their portfolios with the goals of the Paris Agreement, forward looking portfolio metrics like Implied Temperature Rise (ITR) are becoming increasingly popular. In this paper, we describe a Task Force on Climate-Related Financial Disclosures (TCFD)-aligned ITR methodology based on absolute GHG emissions, which includes two important methodological innovations:
First, we introduce constituent-specific decarbonisation benchmarks that blend sectoral pathways, which account for firm diversity more effectively. Second, we take a probabilistic approach to projecting GHG emissions trajectories, which better reflects plausible future emissions reductions for individual companies. We use the results to compare ITR scores with static portfolio metrics such as carbon footprints; and explore the impacts of integrating Scope 3 emissions and voluntary corporate emission targets on ITR scores.
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