CISL backs temperature-based climate metrics for pension funds

A temperature scoring framework, which could tell pension funds instantly how well they align with the Paris Agreement, is being championed by Cambridge Institute for Sustainability Leadership's (CISL) Investment Leaders Group (ILG).

The organisation argued that a temperature-based score would be easy to understand both by professional investors and the general public, while it stated that the now commonly used greenhouse gas emissions used as a reporting metric did not show whether an asset's emissions path was consistent with the Paris ambition.

Conversely, the ILG said that a temperature score as the “ideal metric” as it “offers a meaningful, outcome-based number in degrees centigrade that reveals instantly how a fund aligns with the Paris ambition”.

In its research, which involved examining 15 funds ranked top in CDP’s 2019 Climetrics Fund Awards, ILG found that climate intensity was the most commonly used measure of climate performance, but raised concern about the lack of a standardised method of calculation.

It also noted that just three of the funds reviewed sought to demonstrate their alignment with the Paris Agreement through their metrics, with two measuring their performance in terms of the percentage of assets aligned with a 2°C global warming scenario, while one expressed its emissions performance as a temperature score.

The research concluded: “Clarity, simplicity and ready interpretation are core strengths of a measure designed for non-specialist investors, and the temperature score has them all. No measure of performance sits alone, and climate is no exception.

“Investment managers may wish to report carbon intensity figures, for example, to distinguish their products from industry norms; similarly, reporting the proportion of an asset’s revenue derived from ‘green solutions’ may be material to investors, as might an assessment of exposure to climate risks.

“Nonetheless, we believe the temperature score is the obvious candidate to act as a universal measure of climate performance for the industry, and should be adopted as a basic reporting requirement across all funds, not only ones with specific climate claims.”

The ILG is a voluntary global network of pension funds, insurers and asset managers committed to advancing the practice of responsible investment, with its ranks including the likes of Aon, HSBC State Street and Zurich and members holding over £14trn in assets under management.

The ILG said an upcoming second part of the research would “examine the design of temperature scores, including the underlying science, methods of emissions projection, and distribution of carbon budgets”.

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