This whitepaper explores whether the climate metrics widely used in financial markets truly support decarbonisation and the transition to net zero. It examines the financial relevance of climate change, the role of capital allocation, and the limitations of commonly applied climate indicators, highlighting why current approaches often fail to drive meaningful real-world impact.
Key Takeaways
- Climate Change Is Financially Relevant: Climate change poses growing physical and transition risks, with significant implications for investors, businesses, and the wider economy.
- Capital Allocation Matters: Financial markets play a critical role in directing capital. The challenge lies in channelling investments towards activities that genuinely support the transition to net zero.
- Limits of Existing Climate Metrics: Metrics such as carbon intensities, fossil fuel exposure, and implied temperature rise often suffer from volatility, sector bias, and high uncertainty.
- Implied Temperature Rise Has Structural Weaknesses: ITR metrics rely heavily on assumptions and company targets, which can lead to misleading conclusions about real decarbonisation progress.
- Need for Better Climate Metrics: More effective climate metrics should focus on activities, value chains, and systemic transition pathways rather than isolated company-level indicators.
