Temperature alignment of listed investment portfolios
Methodological update and results
The purpose of this document is to specify the approach taken by Mirova to understand and measure the alignment of its portfolios with climate scenarios.
Whether it’s voluntary efforts or in response to regulatory obligations, most investors are now looking to analyze the links between their portfolios and climate change. To date, there is no established consensus on the methodologies for conducting such assessments.
Many methodologies are emerging gradually in the market, often referred to as Implied Temperature Rise methodologies (ITR), whose objective is to allocate a temperature to a portfolio of financial assets, corresponding to the temperature scenario with which the portfolio of these assets would be aligned. These methodologies group together a significant number of decisive underlying assumptions. Yet, despite a demonstrated desire to achieve a “science-based” outcome, harmonization of approaches is still far away. For the same portfolio of assets, the results will vary from methodology to methodology based on the underlying choices made, in the same way that there is still a strong heterogeneity of ESG[1] ratings based on their suppliers.
The purpose of this document is to specify the approach taken by Mirova to understand and measure the alignment of its portfolios with climate scenarios. A more in-depth critical comparative analysis of these different methodologies and their assumptions could be the subject of a dedicated publication.
Since 2016, Mirova has developed a temperature alignment measurement methodology for its listed investment portfolios. This methodology has undergone developments, the most recent of which are described in this document, but the fundamental principles are and will remain unchanged:
- Carbon neutrality can only be considered as a global state of the planet that reflects the most ambitious climate goals that every individual, business or organization, and state must contribute to with its “fair share”
- Measuring climate impact can only be done using a “life-cycle” approach, i.e. taking into account the direct business impacts as well as the indirect impacts of the supply chain, products and services provided.
- An impact measure and a fortiori an alignment assessment must necessarily integrate understanding and valuing solutions to the energy transition.
1 - Environmental, Social and Governance
The information provided reflects Mirova’s opinion as of the date of this document and is subject to change without notice.
Exclusion, allocation, engagement: the triumvirate for achieving net zero? Hervé Guez outlines the major role that asset managers and institutional investors have to play to achieve carbon neutrality.
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Carbon neutrality, adaptation to climate change, preservation of biodiversity, and combating inequality: these are all complex and interconnected issues that need to be addressed in a holistic manner, rather than piecemeal. Investors wishing to participate in the transition to a fairer and more sustainable economy, will not lack for challenges the coming decades, nor should they lack opportunities to play a positive role.
