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Last week, the Science Based Targets initiative (SBTi) released a draft “beta” version of an open-source tool that will enable investors, lenders and others to analyse the climate performance of portfolios and companies, align investment and lending books with temperature targets, and undertake more effective engagement with firms.
The tool, which SBTi asked OS-Climate and Ortec Finance to develop, is based on a SBTI methodology created by WWF and CDP. Representatives of the Net Zero Asset Owner Alliance are already participating in the project to provide user perspective, but we are seeking more stakeholders to test our tool.
Testing is underway and runs through 13 August. The final version of the tool will be rolled out during Climate Week NYC 2020. code base will be available for data and analytics providers and other organisations to use in their own platforms and products. Several providers are participating in the development project, including Bloomberg, CDP, ISS, S&P Global, and Urgentem.
SBTi is a collaboration between CDP, World Resources Institute, WWF, and the UN Global Compact. It champions science-based target setting and implementation as a powerful means for companies to transition to the low-carbon economy. 923 companies have set targets to date, with 50 new commitments in the last three months alone.
There is excellent potential for building out the Finance Tool code further using community-based collaboration after the September release.
Feedback from the current beta testing will be crucial for ensuring the tool functions well for its target use cases. Along with providing evidence for engagement, such as temperature scores and relative alignment of companies and financial institutions, this will be a workflow tool to inform target setting and alignment, asset allocation, portfolio construction, and securities selection.
Beta testers are asked to test the tools on multiple portfolios and report via a survey on usefulness for analysis and target setting, ease of use, performance, understandability of outputs, etc. There are multiple ways to access the tool for testing, including two that permit testers to run everything within their own security system.
A set of company general, financial, and GHG targets is required to run the tool. While many beta testers will have licenses to company datasets from commercial providers, SBTi is making available sample datasets so that all interested parties can take part.
Testers will see several benefits from participating. They will get a head start integrating temperature ratings into investment processes and a better understanding of the SBTi methodology and tool prior to full release. Also, those subject to the forthcoming EU Disclosure Regulation, effective March 2021, will have more lead time in preparations. While the project team will keep the identities of registered beta testers confidential, those who take part are welcome to publicise their participation as a leadership effort.
One reason SBTi chose OS-Climate and Ortec Finance to develop the tool is because the two organisations are already collaborating on developing the OS-Climate platform of data and analytics, a non-profit community-based open source initiative.
There is excellent potential for building out the Finance Tool code further using community-based collaboration after the September release. A top priority is improving the functionality for purposes of portfolio alignment to temperature targets.
Other candidate areas for extending the tool include incorporating the emissions factors being gathered by Partnership for Carbon Accounting Financials (PCAF) for accounting to estimate in more industry and country granularity the emissions of bank portfolios.
In a webinar in April, Bob Litterman, ex- head of risk at Goldman Sachs and Chair of [TS1] the US Climate-Related Market Risk Subcommittee, and Red Hat/IBM Vice President of Open Source Affairs, Michael Tiemann, explained the power of the community-based open source development approach.
Unlike static “open sourcing” by simply publishing code – which is what many organisations in the climate investing space do – community-based projects are governed with total transparency, and efficiently coordinate contributions from hundreds and often thousands of individuals. This force multiplier accelerates innovation and has driven major breakthroughs across the tech and life sciences sectors – COVID-19 vaccine development, the Human Genome Project, the Internet of Things (IoT), Blockchain, etc.
A core purpose of community-based initiatives like these is to accelerate commercial product development. Competitors and users jointly build the pre-commercial layer of technology and data they all need, preventing “reinvention of the wheel” and freeing up resources for innovation.
Community collaboration on SBTi is off to a promising start. Within 48 hours of the beta release, individuals and companies had already started contributing new code to the github repository.
Those interested in beta testing should email finance@sciencebasedtargets.org for further information.
Truman Semans is CEO and Planning Team Chair of OS-Climate
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