Bloomberg announced it has released Implied Temperature Rise Metrics to help investors determine how companies and portfolios align with climate risk goals, such as the Paris Agreement’s objective to limit global warming to 1.5°C.
Bloomberg is launching these metrics as calls for investors to reallocate capital in line with science-based net-zero targets are increasing. A recent report by CDP (formerly the Carbon Disclosure Project) revealed that under 1% of funds were Paris-aligned as of October 2021, based on an analysis of a third of the total global fund industry worth over $27 trillion.
Bloomberg’s Implied Temperature Rise Metrics are based on the Temperature Rating methodology recommended by the SBTi, which provides a science-based framework to assess how the projected emissions of a company, or carbon targets, translates into an implied temperature rise. Investors can use the metrics to measure the temperature rise alignment to specific climate objectives, and to engage with companies on setting actionable emissions reduction targets. For example, in a long-term scenario, if the implied temperature rise of a portfolio is 1.5°C, it means the portfolio contributes to a maximum temperature rise of 1.5°C by the end of the century. Bloomberg provides full transparency into the underlying model, the methodology and the company-reported or carbon target data underlying the metrics.
Olivier Wibo CFA, Product manager for Sustainable Finance Solutions at Bloomberg, said: “As the financial community seeks to manage the transition to net zero, Implied Temperature Rise Metrics help investors understand and compare how companies are meeting their carbon emission goals. By embedding the widely recognized science-based approach used by the SBTi, Bloomberg is able to provide reliable metrics investors can trust to develop investment strategies that align capital allocation with climate objectives.”
Nate Aden, SBTi Finance Lead, said: “Implied temperature rise is a succinct and rapidly-developing metric for communicating climate alignment. In 2020, the SBTi published the first and only open-source method for calculating the temperature score of a given financial portfolio. Bloomberg’s inclusion of these metrics in its client offerings will help to accelerate the re-allocation of capital towards climate stabilization, not to mention helping to refine and standardize these new metrics.”
Bloomberg’s Implied Temperature Rise Metrics currently cover companies that disclose their greenhouse gas reduction targets to CDP and the SBTi. The coverage will be expanded as Bloomberg aims to use data reported directly by companies as well. For current emissions, the default is “as reported data” for scope 1, 2 and 3. If this data is not reported, estimates based on a proprietary machine learning model developed by Bloomberg are being used. Nine metrics expressed in degrees Celsius are provided for each company, reflecting scope 1+2, 3 and 1+2+3 carbon emissions for short-term, medium-term and long-term scenarios, as defined by the model used by the SBTi. The metrics are provided for over 3,000 listed and private companies and are available on the Bloomberg Terminal and as an Enterprise Data solution, so clients can seamlessly integrate them into their systems.
Portfolio temperature measurement is included in the standard reporting template provided by the Task Force on Climate-Related Financial Disclosures (TCFD). The methodology underpinning Bloomberg’s Implied Temperature Rise Metrics has also been reviewed in the TCFDs report on Portfolio Alignment.
Bloomberg provides a number of sustainable finance solutions offering data-driven insights to help investors integrate ESG throughout the full investment process, and standardize company-reported and third-party ESG data. The solutions include ESG news and research content, carbon estimates, indices, scores, analytics, regulatory compliance solutions, climate analytics and research workflows built specifically for investors.
About the Science Based Targets initiative
The Science Based Targets initiative (SBTi) is a global body enabling businesses to set ambitious emissions reductions targets in line with the latest climate science. It is focused on accelerating companies across the world to halve emissions before 2030 and achieve net-zero emissions before 2050.
The initiative is a collaboration between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF) and one of the We Mean Business Coalition commitments. The SBTi defines and promotes best practice in science-based target setting, offers resources and guidance to reduce barriers to adoption, and independently assesses and approves companies’ targets.
Codeveloped by CDP and WWF and included in the SBTi target setting framework for financial institutions, the CDP-WWF Temperature Rating methodology enables the translation of corporate GHG emissions reduction targets into temperature ratings at a target, company, and a portfolio level. The method can be used to generate temperature ratings for individual targets to translate target ambition to a common intuitive metric. The method provides a protocol to enable the aggregation of target-level ratings to generate a temperature rating for a company, based on the ambition of its greenhouse gas emissions reduction targets. It also defines a series of weighting options to generate portfolio-level temperature ratings.
About Bloomberg
Bloomberg is a global leader in business and financial information, delivering trusted data, news, and insights that bring transparency, efficiency, and fairness to markets. The company helps connect influential communities across the global financial ecosystem via reliable technology solutions that enable our customers to make more informed decisions and foster better collaboration.
Source: Bloomberg Press Release, 3rd Nov 2022
Image: Sam Chang via Unsplash
