Step 1 - Assessing the portfolio
First and foremost, investors will need to understand the carbon exposure of their portfolio and to what degree the underlying companies are aligned with the goal of keeping warming within1.5°C or 2°C. The carbon footprint of a portfolio is the weighted average carbon emissions of the underlying companies in the portfolio and can be compared with a reference benchmark to give a rough estimate of the impact of the investments.
However, a company’s carbon emissions are only part of the story. As the economy transitions to a low carbon economy, some sectors, such as the supply chains for wind turbine and solar PV manufacture, generate significant emissions at the company level, yet are likely to benefit considerably from the climate transition. Therefore, it is also important to measure carbon transition preparedness to give a full picture.