Temperature Score and Implied Temperature Rise Methodology

Overview

What the temperature score shows

Alongside the ESG risks and footprints of any uploaded portfolio, we calculate a portfolio temperature score. It is the level of global warming, in degrees Celsius, that would result if the portfolio represented the global economy: if every company in the world emitted in the same way, relative to its revenue, as the companies the portfolio holds.

The temperature score is one of the additional metrics used in TCFD reporting to show which warming scenario a fund is aligned to. It is reported alongside carbon footprint, weighted average carbon intensity and Climate VaR, set out in our TCFD Reporting and Climate VaR Methodology.

Method

The four stages

The temperature score follows the Cambridge University model set out in Understanding the Climate Performance of Investment Funds (Cambridge Institute for Sustainability Leadership, July 2021). The calculation has four stages:

1. Carbon Emissions Revenue Intensity (CERI) We calculate the portfolio’s emissions relative to the revenue of the companies it holds.
2. Equivalent Global Emissions (EGE) The CERI is scaled to the global economy, to show what global emissions would be if the portfolio represented it.
3. Cumulative CO2 Emissions (CCE) Total emissions are projected to 2100. This is the stage where any emissions reduction rates entered by the user are applied.
4. Implied Temperature Rise (ITR) The cumulative emissions are converted into a temperature rise using the relationship between cumulative emissions and warming published by the IPCC. The result is shown as the portfolio’s temperature score.

Formula

The formula

ITR = α × (Carbon Intensity / (Revenue Intensity × 1bn)) × Global GDP × θ × Years to 2100 + β

Carbon intensity divided by revenue intensity gives emissions per unit of revenue, the CERI. Multiplying by global GDP gives the Equivalent Global Emissions, multiplying by the years to 2100 gives cumulative emissions and the constants convert those into degrees of warming.

For funds, holdings are looked through and reweighted before the calculation. If a company makes up 20% of a fund and that fund makes up 10% of a portfolio, the company carries a weight of 2%, as set out in our Fund ESG Ratings Methodology.

Labels

Paris alignment labels

The Paris Agreement commits its signatories to limiting global warming to well below 2°C above pre-industrial levels, and preferably to 1.5°C. Each temperature score carries one of three labels:

Holdings

Holding contributions

The Temperature Rise Calculation table shows every holding’s contribution, so users can scroll across the portfolio and see which companies push the score up most. For each holding it shows:

• total holding emissions, in tCO2e
• holding emissions relative to value, in tCO2e per $1M
• the holding’s weight in the portfolio
• the carbon footprint from that holding, in tCO2e per $1M

At portfolio level, the table shows the portfolio CERI, the percentage of the portfolio with numbers not disclosed, the temperature score, the temperature score at steady-state emissions and the temperature score before any gross-up for non-disclosure. Our Portfolio Footprint Calculator Methodology explains the footprint calculation behind each holding’s contribution.

Customisation

Entering emissions reduction rates

By default, the temperature score assumes each company’s emissions stay at their current level: the steady-state result. Users can instead enter an estimated year-on-year emissions reduction rate (ERR) for any company, reflecting its targets or the firm’s own projections. The rate is applied when emissions are projected to 2100, and the portfolio shows the weighted average ERR across its holdings.

ERRs are saved to the user’s profile, so they are available in any customised profile but not in the default Uncustomised profile. The steady-state temperature score remains visible alongside, so the effect of the user’s own projections can always be compared with the default result.

Worked example

Worked example

The portfolio’s steady-state score of 1.26°C sits within the Paris Aligned band. After the user enters reduction rates for some of its holdings, the temperature score falls to 1.24°C, with the steady-state result still shown for comparison.

Related methodologies

• Integrum ESG Core Methodologies
• Integrum ESG Scoring Framework
• Company ESG Scores and Glass Box Methodology
• Consensus ESG Score Methodology
• Controversial Activities Methodology
• ESG Controversies and Sentiment Methodology
• Private Markets ESG Data Capture Methodology
• EDCI Data Collection and Reporting Methodology
• SFDR Classification and PAI Methodology
• EU Sustainable Investment Audit Methodology
• EU Taxonomy Alignment Methodology
• TCFD Reporting and Climate VaR Methodology
• Portfolio Footprint Calculator Methodology
• Fund ESG Ratings Methodology
• Golden Retriever Data Extraction Methodology
• Heatstrips and Peer Benchmarking Methodology
• Proxy ESG Scores Methodology
• ESG Screening Methodology
• SDG Impact from Operations Methodology
• Sovereign ESG Scores Methodology
• SDG Revenue Alignment Methodology