“Assessing the climate consistency of finance Taking stock of methodologies and their links to climate mitigation policy objectives” (October 2022)
In the decade for climate action, the financial sector urgently needs to align with low greenhouse gas emission pathways. Managing this transition requires robust assessments of progress. This paper analyses existing methodologies developed by commercial services providers, research institutes or civil society organisations for investors and financial institutions, to assess the alignment of their assets and portfolios with the Paris Agreement temperature goal.
Findings highlights that a range of different choices, as well as current scope and data limitations, impact the environmental integrity of alignment or misalignment results. The paper provides suggestions for more comprehensive and policy relevant financial sector alignment assessment. These include the development of methodologies to cover more financial asset classes than the current main focus on listed corporate equity, the development of more tailored mitigation scenarios by climate policy and science communities, better communication of uncertainties by all stakeholders, and the need for a series of indicators to assess progress and impacts that include but are not limited to GHG-based alignment assessments.