Methodology

The TPI’s methodology was developed by an international group of asset owners in partnership with the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE), supported by data from FTSE Russell. A robust approach was established based on objectivity, transparency and global application.

The initiative assesses companies on two dimensions based on publicly available information:

  1. Management Quality: the quality of companies’ management of their greenhouse gas emissions and of risks and opportunities related to the low-carbon transition;
  2. Carbon Performance: how companies’ carbon performance now and in the future might compare to the international targets and national pledges made as part of the Paris Agreement.

Companies’ management quality is assessed against a series of indicators, covering issues such as company policy, emissions reporting and verification, targets, strategic risk assessment and executive remuneration. Based on their performance against these indicators, companies are placed on one of five levels:

  • Level 0 – Unaware of (or not Acknowledging) Climate Change as a Business Issue
  • Level 1 – Acknowledging Climate Change as a Business Issue
  • Level 2 – Building Capacity
  • Level 3 – Integrated into Operational Decision-making
  • Level 4 – Strategic Assessment

Companies’ carbon performance is assessed using the modelling conducted by the International Energy Agency (IEA) for its biennial Energy Technology Perspectives report. This modelling is used to translate emissions targets made at the international level into sectoral benchmarks, against which the performance of individual companies can be compared. This framework is known as the Sectoral Decarbonization Approach.

We use 3 benchmark scenarios, which in most sectors are:

  • Paris Pledges, consistent with emissions reductions pledged by countries as part of the Paris Agreement (i.e. NDCs);
  • 2 Degrees, consistent with the overall aim of the Paris Agreement, albeit at the low end of the range of ambition;
  • Below 2 Degrees, consistent with a more ambitious interpretation of the Paris Agreement’s overall aim.
Benchmarking is sector-specific and based on emissions intensity (e.g. for electricity utilities, it is tonnes of CO2 per MWh electricity generated). 

Further details on sectoral methodologies can be found on the publications section of the TPI website.

A more in-depth account of the methodology is provided here

Sector and company selection
TPI selects sectors based primarily on their contribution to global greenhouse gas emissions and therefore climate change. Within each sector, we focus on the largest public companies by market value, as these are the most important companies in the typical investment portfolio.