Temperature scores: an innovative tool for ESG fundamental investors

2021 will be a pivotal year to curb climate change. Although global CO2 emissions dropped 7% in 2020 due to the effects of Covid-19-related lockdowns, stronger action will be needed at the upcoming Conference of the Parties (COP) 26 to keep temperature increases below 2°C and towards 1.5°C.1 Achieving the 1.5°C goal will require net zero global emissions by 2050. Today, the financial sector has new tools to measure the alignment of investment portfolios with the goal of net zero global emissions by 2050. Among these are temperature scores. To compute the temperature of company x, one compares the future emissions trajectory of that company with the corresponding trajectory of its sector, as deemed by the International Energy Agency (IEA) in alignment with a world where the temperature rise is limited to 1.5°C. So far, these scores have been adopted by only a handful of investors. A significant amount of work is still needed for investors to efficiently use such scores in their strategies....

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