The Ethos Foundation has published a new methodology thanks to which the global warming caused by listed companies can be assessed. The methodology also aims to measure the risks that climate change poses to their activities.
As more and more companies commit to reducing their net greenhouse gas emissions, thus contributing to the Paris Agreement target, it is more important than ever for investors to be able to measure the reliability of these commitments. In recent months, Ethos teams have therefore developed a new methodology that enables institutional investors to meet the new transparency and climate reporting requirements. In doing so, Ethos «Climate Transition Ratings» assess the credibility of climate change plans and assign a temperature score to listed companies. This score reflects the increase (expressed in degrees) that would be achieved globally by 2100 if the entire economy acted with the same ambition and climate performance as the analyzed company.
Majority of climate targets not achieved so far
«There is currently no internationally recognized standard for measuring the temperature of companies», stresses Vincent Kaufmann, Director of Ethos. And he continues, «Our research has even shown that results vary significantly depending on the data, methodology and assumptions chosen. Moreover, most of the existing methodologies have one thing in common: they assume that the climate targets published by the companies will be achieved. However, empirical data shows that this is not the case, and that the majority of climate targets have not been met to date.»
Credibility factor influences temperature score
Ethos is aware of these limitations and has developed a credibility factor that makes it possible to adjust the ambitions declared by companies. By considering this credibility factor, a company's projected emissions and the CO2 budget allocated to it for the period from 2010 to 2050, Ethos assigns a temperature score to each company. The less credible the climate strategy is assessed to be, the higher the temperature score, regardless of how ambitious the climate targets are.
Investors can measure climate orientation of their portfolios
According to Ethos, the «Ethos Climate Transition Ratings» provide a comprehensive, realistic and credible snapshot of the climate impact of companies. This is intended to enable institutional investors to measure the climate orientation of their portfolios, as well as to monitor the exposure of their investments to climate risks. «The methodology also serves as a new tool for investors to engage in a climate dialogue with companies and decide whether or not to approve a climate vote at a shareholder meeting», Ethos explains.
New methodology complements reporting solutions already offered by Ethos
Finally, this new methodology will complement the reporting solutions already offered by Ethos, whether for voting services at general meetings or for engagement. Thus, institutional investors will have the possibility to fully comply with the new climate transparency requirements, such as the new ASIP and AMAS recommendations on ESG reporting or the «Swiss Climate Scores» developed by the State Secretariat for International Financial Matters.
Partnership with CDP expanded
In connection with the development of these new services, Ethos has recently signed a new partnership agreement with CDP. This guarantees Ethos access to the world's largest environmental database, which includes information on climate, water security and forests. More than 18'700 companies, representing half of the global market capitalization, have thus disclosed data through CDP in 2022.
About the Ethos Foundation
The Ethos Foundation brings together more than 220 pension funds and other tax-exempt institutions. It was founded in 1997 to promote sustainable investment and is committed to a stable and healthy economic environment that safeguards the interests of society in the long term.
