Setting a Net-Zero Target
A checklist for climate-aligned investment portfolios
Aligning investment portfolios with global temperature goals encompasses a series of actions. They include measuring the carbon footprint of holdings, analyzing scenarios, identifying opportunities, monitoring alignment. and reporting on progress and outcomes.
- Stress testing net-zero transition scenarios
- An interactive tool for visualizing net-zero alignment
- Using scenario analysis for climate change
- Making sense of greenhouse gas emissions types
- Untangling corporate decarbonization targets
- Setting interim emissions-reduction targets
- A checklist for climate-aligned investment portfolios
Minimize transition risk
- Measure the carbon footprint of holdings for Scope 1 and 2 greenhouse gas emissions.
- Track and lower Scope 3 exposures.
- 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.
Run scenario analysis
- Use “what if” analysis to identify areas of portfolio exposures under varying scenarios for climate change.
- Assess the costs that holdings might be exposed to under different climate scenarios.
- Integrate insight of the range of downside climate risk into your valuations.
Identify green opportunities
- Assess the current revenue streams of companies to assess which are generating revenue from low-carbon products and services.
- Identify companies developing or investing in low-carbon technologies, analyze capital-expense data and how much of it is dedicated to green solutions.
Minimize physical risk
Assess the potential damage that a company would be exposed to under different climate scenarios.
For each company, ask:
- Does the company disclose its physical climate risk?
- Is the company insured properly?
- Does the company’s valuation reflect its exposure to climate risk?
Monitor alignment with global temperature goals
Assess the credibility of companies plans to transition to net-zero across emission types.
Assess the temperature alignment (e.g., 1.5°C) of the companies you invest in.
For each company, consider:
- Current level of emissions
- Emission levels over the most-recent decade
- Forecasted annual emission levels at least 15 years into the future
- Emission reductions required annually
- Temperature alignment according to the company’s forecasted emissions pathway
Engage with companies on targets and management
- Untangle companies’ targets for greenhouse-gas emissions.
- Assess the company’s ambition versus net-zero goals.
- Identify leaders and laggards to inform engagement.
Communicate on progress and outcomes
- Integrate portfolio-wide metrics into the organization’s TCFD report.