News & Trends

Net-zero targets covered by warming potential

29.11.2023 2 min

Globalance World shows the alignment with the Paris Climate Agreement for around 10,000 companies. The data behind is based on MSCI’s “Implied Temperature Rise” model. This shows how well a company is aligned with global climate targets up to the year 2100. The figure is simple and intuitive. It describes: If the entire economy had the climate ambitions of the respective company, the earth would warm up by this temperature compared to pre-industrial levels (year 1850).

What is it about

According to calculations by the Intergovernmental Panel on Climate Change (IPCC), to stay on a 2°C path, the world may still emit around 1,500 gigatons of greenhouse gases (CO2 equivalent) by the year 2100. This budget serves as the basis for the model. The warming potential is calculated in the following four steps:

  1. A CO2 budget is assigned to each company. It is based on the IPCC global CO2 budget and the goal of keeping global warming below 2°C.
  2. Current emissions data and companies’ published reduction targets are used to determine expected emissions.
  3. The CO2 budget is compared to expected CO2 emissions. This results in an under- or overshoot.
  4. The under- or overshoot of emissions is converted into a temperature.

The warming potential ranges from 1.3°C to 10.0°C. The minimum of 1.3°C corresponds to the global warming already caused today.

Why is this important

Companies are at the beginning of decarbonization. To achieve net zero targets, it is crucial to be able to estimate current and future emissions. At the same time, it is essential for futurefit investors to incorporate this data into their decisions. According to current calculations, 43% of companies are on a 2°C path, but only about 10% are meeting the more ambitious 1.5°C target. Energy, materials and utilities sectors have the highest temperatures. The decarbonization of these sectors is the biggest challenge and will largely determine whether we will achieve the climate targets.

The Globalance Invest view

Globalance World is based on the latest climate data. Net-zero targets of companies are part of it. Globalance supports the publication of net-zero targets. At the same time, we face significant challenges: The methodology assumes that reduction targets published by companies will be achieved. Thus, a company with high current emissions can achieve a good warming potential if ambitious targets are published. Whether the company achieves the targets cannot be said with certainty today. We therefore expect the model to be developed further in the future. For example, how well companies implement their targets should be considered in the coming years.

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