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Methodology

The TPI’s methodology was developed by an international group of asset owners in partnership with the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE), supported by data from FTSE Russell. A robust approach was established based on objectivity, transparency and global application.

The initiative assesses companies on two dimensions based on publicly available information:

  1. Management Quality: the quality of companies’ management of their greenhouse gas emissions and of risks and opportunities related to the low-carbon transition;
  2. Carbon Performance: how companies’ carbon performance now and in the future might compare to the international targets and national pledges made as part of the Paris Agreement.

Companies’ management quality is assessed against a series of indicators, covering issues such as company policy, emissions reporting and verification, targets, strategic risk assessment and executive remuneration. Based on their performance against these indicators, companies are placed on one of five levels:

  • Level 0 – Unaware of (or not Acknowledging) Climate Change as a Business Issue
  • Level 1 – Acknowledging Climate Change as a Business Issue
  • Level 2 – Building Capacity
  • Level 3 – Integrated into Operational Decision-making
  • Level 4 – Strategic Assessment

Companies’ carbon performance is assessed using the modelling conducted by the International Energy Agency (IEA) for its biennial Energy Technology Perspectives report. This modelling is used to translate emissions targets made at the international level into sectoral benchmarks, against which the performance of individual companies can be compared. This framework is known as the Sectoral Decarbonization Approach.

The benchmarks are:

  • (a) a 2 degrees scenario, which is consistent with the overall aim of the Paris Agreement to hold “the increase in the global average temperature to well below 2 °C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 °C above pre-industrial levels”, and
  • (b) a Paris Pledges scenario, derived by aggregating the emissions reductions pledged by individual countries as part of their Nationally Determined Contributions to the Paris Agreement.

A more in-depth account of the methodology is provided here

A guide for investors on how to use the TPI can be found here