CDP debuts new tool to help investors weigh global warming efforts
  • New measurement for a company’s expected global warming impact may help investors. 
  • CDP ‘temperature ratings’ tool lets investors weigh a company’s impact on the climate. 
  • ‘Temperature ratings’ are the latest addition to the dizzying number of ways to measure a company’s ESG commitment. 

The latest investors’ tool for measuring the impact of a company’s global warming plans is a “temperature” rating — one that estimates how much a business’ reduction in greenhouse gas emissions would support the Paris Agreement on climate change.

U.K.-based nonprofit CDP developed temperature ratings for more than 4,000 companies, translating their emissions-reduction targets into estimated long-term temperature outcomes. The ratings convey the global warming that’s likely to occur if emissions worldwide were to be reduced at the same speed as a particular company’s emissions if its target is met. Under the Paris Accord, the ideal global temperature increase by 2050 would be no more than 1.5° Celsius above pre-industrial norms.

“Some companies have come a long way,” Emily Kreps, global director of CDP’s capital markets program, told Karma. The temperature ratings can offer “meaningful industry comparables.”

The temperature ratings illustrate a problem that has dogged social impact investing for years. The ratings are the latest in a dizzying range of tools that aim to help clarify how to measure investments along ESG lines, a task made difficult because there is no commonly accepted standard for what constitutes a “green” investment.
Kreps agreed that careful investors shouldn’t rely just on the temperature ratings to make decisions. “Do your research and use your critical thinking skills,” she said.

Comparing a company’s rating against the 1.5° C target might not tell the whole story, for instance. A company that has a 2.0° C rating might be making a positive impact if it’s in an industry where the average is 3.0° C.

Initial feedback about the temperature ratings has been positive, Kreps said.

“People are excited,” she said. “There have been a lot of questions, people asking about methodology.”

Russian aluminum producer En+ Group praised the temperature ratings on Twitter, tweeting that they were “a positive step forward in #carbonfootprint transparency and sustainable procurement.”

Amundi, Europe’s largest asset manager, teamed with CDP to pilot the ratings on four of its equity funds. The firm expects to use the temperature ratings to grow its ESG research capabilities.

“Investors need to back the companies that are supporting a faster transition of our economy to a low-carbon model,” Jean-Jacques Barbéris, head of the ESG business line for Amundi’s general management, said in a statement.

The global pandemic may have helped the fight against climate change by raising awareness, according to Kreps. It “heightened the focus on systemic risks,” she said. And climate change is one of those risks.

On the flip side, disruptions caused by the lockdowns have slowed disclosures by companies. The number of businesses that provided data to CDP had been climbing in recent years, but this year may stay level, Kreps said. “It’s not a lack of interest,” she said. It’s just that companies have had to redeploy their resources to deal with the COVID crisis.”