An analytical framework for a net-zero journey
Investors can align investment portfolios with the global goal of reducing GHG emissions to net-zero using a framework designed to assess the resiliency of companies to the decarbonization of the economy. This framework covers four dimensions.
- Implementing net-zero portfolios in practice
- Highlights from Climate Week NYC 2021
- The prospect of a shrinking equity universe
- How climate indexes can support a net-zero strategy
- Examining climate risk over varying time horizons
- An analytical framework for a net-zero journey
- Preparing for action across your organization
- “Net-Zero Now” is a call to action for capital
Minimize transition risk
The primary risks associated with climate change could come from a transition to net-zero emissions. To minimize transition risk:
- Measure the carbon footprint of holdings for Scope 1, 2 and 3 greenhouse gas emissions.
- Assess the extent to which those holdings rely on fossil-fuel-based revenues for growth.
- Assess how management teams at portfolio companies can adapt to evolving regulatory constraints.
- Calculate the portfolio’s implied temperature.
- Set a target to decarbonize the portfolio.
Capture sustainable opportunities
Companies that earn a significant share of their revenues from clean energy may face less risk from climate policies that result in the stranding of fossil-fuel assets.
- Assess green revenues portfoliowide.
- Identify companies that may be taking the lead in developing technologies that either innovate or scale in proportion to the challenge of achieving global climate goals.
- Identify opportunities that green bonds may offer to fund movement away from environmentally damaging projects (such as coal-based power generation) toward greener projects.
Ensure 1.5°C alignment
Calculate the contribution of a company’s activities toward climate change.
- Calculate the implied temperature of companies to determine their alignment with scenarios such as 1.5°C.
- Compute the portfolio’s implied temperature, which will be a weighted aggregate of the company-level temperatures.