Climate Reporting of Long-Short Investment Portfolios and Derivatives: A Best Practice Approach for Transparency

Key Takeaways

• The Importance of Transparent Climate Reporting of Investment Portfolios: Transparent reporting is essential for providing a clear view of an investment portfolio’s climate impact and dependencies. This involves accounting for all exposures, including those introduced by short positions and derivative instruments, which can significantly affect a portfolio's overall carbon footprint.
• Best Practices for Climate Reporting of Complex Institutional Portfolios: Transparent climate reporting for complex investment portfolios requires a robust framework that evaluates long and short positions equally, based on economic exposure. For true traceability, portfolio segments must be identified separately, enabling a clearer and more comprehensive understanding of climate exposure. Using the Finreon Carbon Focus® portfolio as a case study, we delve into how a portfolio with short positions can effectively steer the exposure to financed emissions.
• The Role of Modeled Climate Data in Enhancing Value Chain Assessments: Corporate GHG emissions reporting lacks standardization—some companies may disclose only Scope 1 and 2 emissions, while others include Scope 3 or provide incomplete data. This inconsistency reduces the comparability of reported data, making estimated climate data essential for accurate assessments. This report explains how Inrate’s modeled climate data fills this gap by delivering comprehensive insights, including Scope 3 emissions, which represent the majority of a company’s value chain impact. These insights can empower investors to enhance transparency and comparability in climate reporting.