On Thursday, Ethos unveiled a new methodology for assessing global warming caused by the activities of listed companies. The methodology also aims to measure the credibility of companies' climate transition plans and the risks that climate change poses to their activities. The "Ethos climate transition ratings" will enable institutional investors to comply with the new transparency and climate reporting requirements.
As more and more companies commit to reducing their net greenhouse gas emissions, thereby contributing to the objective of the Paris Agreement, it is more important than ever for investors to be able to assess the reliability of these commitments. In recent months, Ethos' teams have therefore developed a new methodology for assessing the credibility of climate transition plans and assigning a temperature score to listed companies. This score reflects the increase (in degrees) that would be reached by 2100 on a global scale if the entire economy were to act with the same ambition and the same climate performance as the company analysed.
“There is currently no internationally recognised standard for measuring the temperature of companies," stresses Vincent Kaufmann, CEO of Ethos. “Our research has shown that the results vary significantly depending on the data, methodology and assumptions chosen. Furthermore, most existing methodologies have one thing in common: they assume that the climate targets published by companies will be met. However, empirical data shows that this is not the case and that most climate targets have not been met to date”.
Aware of these limitations, Ethos has developed a credibility factor that corrects companies' stated ambitions. By considering this credibility factor, a company's projected emissions and the carbon budget allocated to it for the period from 2010 to 2050, Ethos assigns a temperature score to each company. The less credible a company's climate strategy is, the higher its temperature score will be (for a given climate ambition).
Climate reporting in line with new requirements
The Ethos climate transition ratings provide a comprehensive, realistic, and credible picture of the climate impact of companies. For institutional investors, it is a way of measuring the alignment of their portfolios with climate objectives and monitoring the exposure of their investments to climate risks. This methodology will also provide them with a new tool for engaging in dialogue with companies on climate issues and deciding whether or not to approve a climate-related vote at a general meeting.
Finally, this new methodology complements the reporting solutions already offered by Ethos, whether for proxy voting at general meetings or for engagement. It will enable institutional investors to respond fully to new climate transparency requirements, such as the new ASIP and AMAS recommendations on ESG reporting and the “Swiss Climate Scores” developed by the State Secretariat for International Finance. Ethos' platform will soon enable its users to automatically generate reports that comply with these new requirements.
Expanded partnership with CDP
In connection with the development of these new services, Ethos recently signed a new partnership agreement with CDP, enabling access to the world's largest environmental database, including information on climate as well as water security and forests. More than 18’700 companies worth half of global market capitalization disclosed data through CDP in 2022 – informing investment and procurement engagement & decisions towards a zero carbon, sustainable and resilient economy.
This extended partnership will enable Ethos' clients to measure and publish the carbon footprint of their portfolio. This will enable them to comply with the new climate transparency and reporting requirements.