(Bloomberg) -- Talk is cheap in the world of climate finance, so a group of analysts from firms including Goldman Sachs Group Inc. and BlackRock Inc. have offered new guidance on a nascent technique to help track whether banks and asset managers are following through on their pledges to decarbonize their portfolios in line with the goals of the Paris Agreement.
By using current emissions data as well as estimated future emissions, so-called portfolio alignment metrics can help investors measure whether the companies they finance are moving towards net zero at a pace consistent with the Paris accord target of limiting global temperature increases to 1.5° Celsius. The Portfolio Alignment Team, which was formed by former Bank of England Governor Mark Carney and also includes representatives from Bank of America Corp. and HSBC Holdings Plc, said in a statement this information should also offer insight into how fast the finance sector is moving in supporting the low carbon transition.
As the key conduits of capital in the global economy, banks and asset managers are under growing pressure to use their vast resources to support efforts to decarobinze the world. And expectations are only set to grow as world leaders gather in Glasgow, Scotland, later this month for the much anticipated United Nations climate conference where the role of finance in fighting global warming will be a key theme.
Read more: ‘Portfolio Warming’ Is the New Climate Anxiety for Fund Managers
“One important tool in ascertaining if financial institutions are fulfilling their net-zero pledges and plans is portfolio alignment,” David Blood, head of the Portfolio Alignment Team and senior partner at Generation Investment Management, said in an interview. “The critical point here is if we can develop tools that are forward looking then we can allocate capital more thoughtfully to net zero.”
While portfolio alignment metrics aren’t currently widely used by investors, a plethora of different approaches that are “often divergent and sometimes opaque” have been developed, according to the Portfolio Alignment Team’s statement. The report is an effort to “foster convergence of approaches” and recommend areas of best practice in the construction and use of these tools.
By creating “some degree of common practice,” investors can better compare company performance and can “provide clarity and consistency for non-financial institutions on how their behavior related to the net-zero transition may impact their interactions with banks, asset managers, asset owners and insurance companies.”
A group of financial institutions, including France’s Axa SA, have published data on the warming potential of their portfolios and the reading is grim, implying a world of about 3°C of warming, double the Paris ambition.
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