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Understanding the climate performance of investment funds

14 April 2021 – Understanding the climate performance of investment funds should be made simple to all investors. New research from CISL's Investment Leaders Group (ILG) aims to assess current methodologies for assessing the climate performance of funds and will offer a framework and simple disclosure method for financial institutions.

Understanding the Climate P

Download Part 1 of the report

Investors are increasingly turning their attention to climate change, seeking to mitigate climate risks in their portfolios, gain exposure to assets offering climate solutions, and generally have a positive impact upon the world's most serious long-term threat. The base metric for climate stability proposed by the Sustainable Investment Framework utilises total greenhouse gas (GHG) emissions (Scope 1 and 2) as the reporting metric. Although greenhouse gas reporting offers a snapshot of emissions performance, it does not show whether an asset's emissions path is consistent with the Paris ambition. The ideal metric - a temperature score - offers a meaningful, outcome-based number in degrees centigrade (°C) that reveals instantly how a fund aligns with the Paris ambition.

Part 1 of the report analyses the approaches currently used to measure and report investment funds' climate performance and makes a case for temperature score to act as a universal measure of climate performance for the industry.

Part 2 will examine the design of temperature scores, including the underlying science, methods of emissions projection, and distribution of carbon budgets. It offers a decision-making framework, helping financial institutions to distinguish the correct approach based on their various assumptions and concludes with a simple, potentially standard disclosure method for general use by the investment industry.

About

The Investment Leaders Group (ILG) is a global network of pension funds, insurers and asset managers committed to advancing the practice of responsible investment. It is a voluntary initiative, driven by its members, facilitated by the Cambridge Institute for Sustainability Leadership (CISL), and supported by academics at the University of Cambridge. The ILG's vision is an investment chain in which economic, social and environmental sustainability are delivered as an outcome of the investment process as investors go about generating robust, long-term returns.

Citing this report

Cambridge Institute for Sustainability Leadership (CISL). (2021). Understanding the climate performance of investment funds. Part 1: The case for universal disclosure of Paris alignment. Cambridge, UK: Cambridge Institute for Sustainability Leadership.

Published April 2021

 

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Disclaimer

The opinions expressed here are those of the authors and do not represent an official position of CISL, the University of Cambridge, or any of its individual business partners or clients.