MSCI launches portfolio temperature tool

By ESG Clarity

MSCI has created a tool to calculate the implied temperature rise of their equity portfolios ahead of COP26.

The Implied Temperature Rise solution covers 10,000 publicly listed companies based on the MSCI ACWI Investable Market Index. It will help investors analyse the pace at which their portfolio holdings are transitioning their businesses to meet their climate goals; MSCI said the solution captures crucial benchmarks such as the 2°C target, referring to the Intergovernmental Panel on Climate Change’s (IPCC) goal, or the 1.5°C limit earmarked in the Paris Agreement.

It converts current and projected greenhouse gas emissions of the businesses, while considering their reduction targets. Projections are calculated by comparing those projected emissions with the global carbon budget that remains if the planet is to keep temperature rise this century below 2°C. The tool has also been created with from design recommendations MSCI’s dedicated Taskforce for Climate-related Financial Disclosures (TCFD) portfolio alignment team.

When the Temperature Rise solution is used alongside the firm’s Target Scorecard, which assess companies’ decarbonisation and net-zero climate targets, and the recently launched quarterly Net-Zero Tracker, MSCI said investors have a framework to strengthen their engagement on climate risk and navigate the transition to a net-zero economy.

Remy Briand, global head of ESG and climate at MSCI, said: “Climate change is the greatest challenge of our time and capital markets participants are critical to driving the systemic transformation needed to avert climate catastrophe. The Implied Temperature Rise metric is an important addition to our evolving suite of climate investing tools and builds on MSCI’s mission to ensure capital markets and its participants can drive the transition to net-zero. Investors are rapidly sharpening their focus on the financial impacts of climate change, and they need greater transparency and insight on whether their capital may further, or frustrate, the goal of a more sustainable society.

“With its measure for forward-looking portfolio emission trajectory, investors can use Implied Temperature Rise as a versatile tool to set decarbonization targets and strengthen engagement on climate risk.”

MSCI Implied Temperature Rise is available as part of MSCI ESG Research’s Climate Value-at-Risk product.