Trajectory Monitoring in Portfolio Management and Issuer Intentionality Scoring

Abstract

Two-degrees alignment has become a major issue for climate-aware portfolio management. There are sophisticated initiatives aiming to predict corporate emission intensities from 2030 up to 2100. In this paper, we focus on the significance of the ‘current policy scenario’, where corporates would simply stay on their current trajectories for their emission intensities. UNEP has illustrated how far the global current policy scenario is from a global two-degrees scenario. We want to understand this ‘current policy scenario’, broken down asset-by-asset within the significant emission sectors, and from a global index point of view. We will address choices of emission intensity metrics and of weighting schemes. Enabling the low-carbon transition while maintaining a long-term focus in investment decision-making is a relevant approach. In this paper, we intend to illustrate the virtue of the long-term choice with a simple three-year observation gap in the power generation sector’s intensities. To complement our ‘current policy’, which focuses on the emissions track-record of firms, we illustrate a mosaic theory approach to quantifying the intentionality of a firm to green itself. Anticipating positive impacts requires that investors have identified their key questions for firms' intentions.

Keywords: Climate change, scenarios, trajectory, intentionality, decision tree

JEL Classification: G11, Q54, Q56