CDP has launched a new set of climate ratings that gauges the temperature pathway of investor portfolios, funds and stock indices, in a bid to help financiers better understand and manage escalating climate risks.
The investor-backed non-profit hopes the new metric, which translates emissions targets into warming trajectories, will prompt investors to take steps to future-proof their portfolios and funds from worsening climate impacts and stranded asset risks.
CDP's dataset offers investors temperature ratings for more than 4,000 companies, taking into account emissions reduction plans across companies' value chains, including Scope 3, or indirect emissions.
Europe's largest asset manager Amundi is the first company to adopt the climate rating system for its ESG analysis. It revealed this week that four of its multisector equity funds — including CPR Invest-Climate Action and Amundi Global Ecology ESG — are aligned with temperature pathways in the range of 2.6 to 2.7 degrees C.
Under the Paris Agreement, governments are striving to limit global warming to "well below" 2 degrees C above pre-industrial levels, while working towards a target of 1.5 degrees C of warming. However, temperatures are already about 1 degree C above pre-industrial levels, and the United Nations has warned that the world is headed for a potentially devastating 3.2 degrees C temperature rise this century, based on governments delivering on their currently unconditional emissions reduction pledges.
Mobilization and concrete action can only be achieved through a common understanding of the target impacts set by companies, and a recognition of the remaining required efforts.
Emily Kreps, global director of capital markets at CDP, said that the new tool would help investors align their portfolios with international climate goals and the net-zero "economy of the future." "By providing a clear, science-based and uniform standard for companies' ambition, CDP temperature ratings now allow investors to do that by benchmarking, communicating and reducing the temperature of their portfolios and products," she said. "Asset managers must be transparent, and it is good to see Europe's largest asset manager leading the way."
The rating system, which builds on a new approach being developed by CDP and WWF, reflect global warming likely to occur if the company reduces its greenhouse gas emissions in line with stated targets.
Jean-Jacques Barberis, head of the ESG business line for Amundi's general management, said the tool would allow investors to "future proof their investment universe" from the impact of climate change while improving corporate dialogue.
"Investors need to back the companies that are supporting a faster transition of our economy to a low-carbon model, and encourage others through targeted engagement," he said. "Mobilization and concrete action can only be achieved through a common understanding of the target impacts set by companies, and a recognition of the remaining required efforts. CDP's new temperature ratings support this collective journey as the economic and financial ecosystem develops new methodologies and data."
Amundi said that the temperature ratings would help it identify the necessary steps required to set more ambitious science-based emissions reduction targets, notably through engagement with investee companies.
The approach mirrors an analysis undertaken by insurance giant AXA, which this week published its annual climate report detailing how it has trimmed the "warming potential" of its portfolio, pulling the temperature trajectory for its investments down from 3 degrees C in 2018 to 2.8 degrees C last year.