CDP launches climate 'temperature rating' system for investors

LONDON (Reuters) - Global environmental non-profit group CDP said on Tuesday it had created a temperature ratings system that will allow investors to track carbon emissions from across the value chain of more than 4,000 companies.

The sun sets next to a smokestack from a coal-burning power station in Beijing January 9, 2008. China's lax patent protection is hampering growth of the multi-billion dollar trade in clean energy technology, a U.S. official said on Wednesday, but China warned that U.S. export controls were also denting commerce. REUTERS/David Gray (CHINA)

The degree to which companies’ emissions are on track to support the Paris Agreement on climate change is a focus for investors as they look to pick the leaders in the transition to a low-carbon economy and engage with the laggards.

“Investors increasingly want to align their portfolios with international climate goals and the economy of the future,” said Laurent Babikian, Director Capital Markets at CDP Europe.

“By providing a clear, science-based and uniform standard for companies’ ambition, CDP temperature ratings now allow investors to do that by benchmarking, communicating and reducing the temperature of their portfolios and products.”

Under the Paris accord, countries agreed to keep the average global temperature increase to no more than 2 degrees Celsius and ideally to 1.5 degrees Celsius above pre-industrial norms by 2050.

As regulators increasingly look to incentivise changes in corporate behaviour through new laws and taxes, investors could potentially see the value of their investments hit hard.

To better understand the risk in their portfolios, a number of asset managers have already been looking to get to grips with the data being produced by companies in an effort to track the implied temperature score of their portfolios.

CDP said in a statement its data was based on an assessment of each company’s emission-reduction targets, as reported to CDP every year, converted into a temperature rating.

Crucially, CDP said the data would provide insight to the full range of emissions from a company, including so-called “Scope 3” emissions from a company’s products, which for a large oil company would include gasoline used in cars and trucks.

French asset manager Amundi will be the first to use the new rating system as a way to bolster its research efforts, drive engagement with company boards and track the performance of its funds.

“These temperature measurements will ... strengthen the evidence we have to select companies with whom we wish to carry out specific climate commitment actions, in order to encourage them to develop and implement climate commitments,” said Jean-Jacques Barberis, Head of Institutional and Corporate Clients Coverage at Amundi.

Reporting by Simon Jessop; editing by David Evans