Temperature Score and SBTi: learn about approaches to help limit the impact of your investments on climate change

Key takeaways

The temperature score has recently emerged as a crucial metric, providing businesses and investors with a powerful tool to measure and manage their carbon footprint. This innovative approach plays an important role in aligning financial decisions with climate goals. 

In this article, we will give you an overview of the temperature score, from its significance in the financial industry to the frameworks available for its implementation. We hope this is an enlightening and inspiring read that will help you take your investment strategies in achieving its environmental objectives. 

First things first: what is the temperature score?

The temperature score is a metric designed to assess the company's trajectory in relation to the Paris Agreement. It goes beyond traditional carbon accounting by estimating the future global temperature increase based on the ambitions (targets) of a company, its current and historical GHG emissions, as well as other external factors (for example, transition scenarios). It is, therefore, a forward-looking approach and provides a more comprehensive understanding of a company's contribution to climate change.

Temperature score applications in the financial industry

The financial industry increasingly recognizes the importance of integrating climate-related data into the investment processes. The temperature score provides a clear and standardized metric, enabling investors to assess the climate impact of their portfolios. This information is vital for making investment decisions that align with the goals of the Paris Agreement, which aims to limit global warming to well below 2 degrees Celsius above pre-industrial levels.

The CDP-WWF temperature rating methodology

There are several methodologies for determining a company’s and a portfolio’s temperature score. Their similarities lie in that they analyze historical data and/or targets disclosed by the issuer on carbon reduction to obtain an overall temperature score. 

Datia’s team is very familiar with and chose to work with the temperature rating methodology developed by CDP Worldwide and the World Wide Fund for Nature (WWF) and published in October 2020. 

“Investors currently lack efficient tools to monitor the transition to net zero. Temperature scores emerge exactly to bring comprehension and comparisons to such a complex topic. We at Datia chose to leverage the CDP-WWF temperature rating methodology, an approach that investors can trust. By combining it with science-based target data and the ambitions set directly by companies, we hope to further help our customers understand their portfolios' contribution to climate change”, explains Nora Sandahl, Head of Sustainability at Datia.

The CDP-WWF temperature rating is an open-source methodology and includes three steps: 

  1. a target protocol, which converts individual emissions targets to temperatures
  2. a company protocol, that aggregates these targets into an overall company score, and
  3. a portfolio protocol, which weights these company scores across an investment portfolio

The Science Based Targets Initiative (SBTi)

Besides temperature score methodologies, several other initiatives have emerged to help companies and investors take climate issues into account. 

One prominent initiative is the Science Based Targets initiative (SBTi). It is a framework that supports companies in setting a clearly defined path to reduce emissions in line with the Paris Agreement goals. 

The SBTi framework stands out for several reasons. It is science-based, ensuring that emission reduction targets are grounded in the latest climate science. This approach enhances the credibility and effectiveness of sustainability efforts. SBTi provides a clear and transparent methodology for setting targets, offering companies a systematic way to align their actions with global climate goals. 

SBTi is the result of a collaborative effort between CDP Worldwide, WWF, the United Nations Global Compact (UNGC), and the World Resources Institute (WRI). It enjoys widespread recognition and support, making it a trusted and widely adopted framework within the business community. As of early 2024, more than 4,000 businesses around the world had already committed to a target. And, from working closely with SBTi’s team, Datia’s team learned that they expect this number to continue growing. 

How Datia can help investors leverage temperature scores for their sustainable investment strategies

We at Datia aim to help investors implement sustainability strategies using the best available data and frameworks. We believe the temperature score is an essential tool for investors whose environmental objectives include addressing global warming. 

That is why Datia developed a temperature score screening tool. The tool applies the renowned CDP-WWF temperature rating methodology to the real emissions data of your investee companies and automatically presents you with the temperature score of your portfolio in the short, mid, and long term. 

Using the open-source list of companies who committed to SBTi, Datia also displays what percentage of your investee companies are among the ones who committed. 

To find out more about the temperature score screening tool, reach out to our team of experts.