New guide aims to measure portfolio progress to net zero

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The Portfolio Alignment Team published new guidance on portfolio alignment metrics last week, to help investors assess where they are on the path to net zero. The guidance, which supersedes a previous report, aims to support disclosure in line with the Task Force on Climate-related Financial Disclosures. 
 
The PAT is an independent group of experts set up by former Bank of England governor Mark Carney, and includes HSBC, BlackRock and the COP26 Private Finance Hub.  
 
The PAT guidance finds that metrics add value as they not only assess present-day emissions of counterparties but also their future emissions and whether these reduce fast enough to be aligned with a net zero path. Metrics also allow differentiation between regions and sectors, with the PAT saying that a portfolio based on advanced economies should be assessed against more demanding benchmarks than one focused on developing countries. 

Report identifies emerging best practice

 
PAT identifies emerging best practice on tools and forward-looking measurement – such as binary target measurements, benchmark divergence models and implied temperature rise – and future research priorities. 

The 85-page portfolio metrics report can help investors disclose their activities as recommended by the TCFD, although PAT stresses that it is “not a definitive guide to the optimal technical approach to portfolio alignment tool design”. The TCFD recently amended its guidance to recommend that all financial institutions disclose the alignment of their activities with a global warming scenario of well below 2 degrees.  
PAT will now transition its work to the Glasgow Financial Alliance for Net Zero, which represents 300 financial institutions and more than $90tn in assets. GFANZ will continue the guidance on portfolio alignment metrics, bringing together the financial sector to define industry standards. 

Carney, now a finance adviser to the prime minister for COP26 and UN special envoy for climate action finance, said to limit global warming to 1.5 degrees, countries and companies on the path to net zero need capital. He added that “portfolio alignment metrics equips financial institutions, and their stakeholders, with a forward-looking view of how well aligned lending and investments are with science-based pathways to net zero". 
 
The new portfolio metrics report is the result of collaboration across the financial sector, said David Blood, who heads up the PAT and is a senior partner at Generation Investment Management. “The framework we have created together provides a consistent way to measure net zero alignment. We hope our work will drive convergence of portfolio alignment construction across the financial service industry and increase adoption and disclosure of portfolio alignment metrics,” he said. 
 
Head of the TCFD Mary Schapiro welcomed the new report, saying that “investors need tools to better measure portfolio alignment” with net zero, calling the PAT’s work “complementary” to the TCFD’s. 
 

Does the new guide help to define standards for net zero? 


Mike Clark
Nick Spencer
Sital Cheema
 

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