The initiative assesses companies on two dimensions based on publicly available information:
- Management Quality: the quality of companies’ management of their greenhouse gas emissions and of risks and opportunities related to the low-carbon transition;
- 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
- Level 4* – Companies are on Level 4* if they are scored Yes on every single Management Quality indicator
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:
- 1.5 Degrees scenario, which is consistent with the overall aim of the Paris Agreement to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-industrial levels”. This scenario is consistent with a carbon budget that limits the global mean temperature rise to 1.5°C with a 50% probability.
- Below 2 Degrees scenario, which is also consistent with the overall aim of the Paris Agreement to limit warming, albeit at the middle of the range of ambition. This scenario is consistent with a carbon budget that limits the global mean temperature rise to 1.65°C with a 50% probability.
- National Pledges scenario, which is consistent with the global aggregate of emissions reductions pledged by countries up to at least mid-2020, depending on the sector. According to the IEA, this aggregate is currently insufficient to put the world on a path to limit warming to 2°C, even if it will constitute a departure from a business-as-usual trend. This scenario is consistent with a carbon budget that limits the global mean temperature rise to 2.6°C by 2100 with a 50% probability.
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 hereSector 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.