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Science Based Targets initiative kicks off creation of tool to assess investment portfolios

Tool is slated for September

The Science Based Targets initiative (SBTi) has commissioned US and Dutch climate experts to build a tool to assess the Paris-alignment of investment portfolios.

A contract with a maximum value of $130,000 has been awarded to analytics provider Ortec Finance and US non-profit OS-Climate. Both are founding partners of the OS-C open source platform – a new initiative to make key climate data and analytics freely available to the market, backed by a high-profile figures including ex-Goldman Sachs risk head Bob Litterman and UN climate chief Christiana Figueres, in addition to market players such as Allianz and S&P Global.

The SBT initiative is a collaboration between the World Resources Institute, WWF and CDP, which aims to push companies to set credible emissions reduction targets in line with the Paris Agreement.

According to the contract, Ortec Finance is to carry out the development of the software underpinning the tool, while OS-Climate will oversee the tool’s terms of use, including licensing rules.

The tool is being developed under the auspices of SBTi-Finance – the financial sector arm of the SBT initiative – and is expected to be used by investors and other financial institutions to ensure that science-based targets are set by all portfolio companies, and to assess asset-level and overall portfolio alignment with the Paris Agreement.  

The first iteration of the tool – due to be released in September – will include support for investors seeking science-based targets for all portfolio companies by 2050, based on their current baseline; and assess the long-term emissions goals of the firms, as well as portfolio-level emissions, against a wide range of temperature pathways. Classifications such as 2.1°C and 3.1°C are being considered for inclusion alongside the IPCC-defined pathways of 2°C, well below 2°C and 1.5°C.

The tool will be “data-agnostic”, meaning that it will be able to accept input data from a range of major service providers including CDP, ISS, Bloomberg and MSCI; and will be locally hosted by the user, not on the internet, for ease of integration with existing systems and to ensure the integrity of any confidential portfolio data.

The tool’s functionality and underlying methodology was determined by a working group of investors and financial institutions established by SBTi-Finance. Another working group, consisting of data and service providers, developed the minimum technical requirements for the tool.

According to SBTi-Finance, much of the funding for the tool came from prominent US grant-making organisation the Hewlett Foundation.

SBTi-Finance is not the only market initiative working on approaches to assess portfolios against the Paris Agreement. Last year, the Institutional Investors Group on Climate Change launched a project to define what Paris-alignment “means in practice” for investors, with a draft framework scheduled for consultation in June.

Separately, the OS-C platform plans to launch an initial “kernel” version of its platform in the summer, once sufficient funding is achieved.