While a growing number of investors are communicating about the alignment of their investment portfolios with the Paris Climate Agreement, the complex methodologies used can lack transparency and do not sufficiently address this objective. The Institut Louis Bachelier, in collaboration with I4CE, is publishing a report to examine this issue and thus analyse investors’ alignment with the trajectory of limiting global warming to 2 degrees Celsius by the end of the century.

The report entitled “THE ALIGNMENT COOKBOOK A Technical Review of Methodologies Assessing a Portfolio’s Alignment with Low-Carbon Trajectories or Temperature Goal” was produced on behalf of the French Ministry of Ecological Transition and WWF France.

A comparative analysis of existing methodologies

This report aims to map and analyse the methodologies used by institutional investors to assess the alignment of their investment portfolios with a low-carbon trajectory by addressing some key issues: Why do investors assess the alignment of their investment portfolios with low-carbon objectives? What are the different methodologies used? What objectives can this exercise serve? What are the particularities of the indicators used?

To answer these non-exhaustive questions, the authors of the report, including Julie Raynaud, an expert in sustainable finance and member of the ILB network, conducted a review of the existing literature and numerous interviews with experts (research institutions, NGOs, academic researchers, data providers, investors, etc.). They then tested 12 methods on two indices, the Euronext LC100 and the SBF 120, in two different years, 2018 and 2019.

Heterogeneous methodologies with little comparability

One of the main findings of the report is that the methodologies used by investors are very heterogeneous, which makes it unlikely that the results can be compared: “The temperature alignment methods currently available show little consistency in terms of results. The results themselves are difficult to compare due to different levels of coverage and different assumptions,” the report says.

Read more about the report: