TPI assesses companies on two dimensions: Management Quality and Carbon Performance. FTSE Russell, a TPI partner, provides the climate change and corporate governance related data that underpins the first dimension, the initiative’s Management Quality framework.
The underlying data is used to evaluate each company’s level in the Management Quality framework, for example how a company manages its Greenhouse Gas emissions and the risks and opportunities related to a low-carbon transition. The data also enables the TPI to align its Management Quality framework with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Examples of data points being used by TPI include:
- Climate Change policy
- Financial costs of climate change risks
- Energy reduction targets
- Short and long-term, emissions reduction targets
- Remuneration for senior executives including ESG performance
FTSE Russell’s data on climate change and corporate governance are a part of its ESG data model. They draw from international standards to analyse the ESG Ratings of over 4,100 companies, identifying companies with strong or weak ESG practices.
In addition to providing data, FTSE Russell is also a member of TPI’s Technical Advisory Working Group, contributing to the evolution of TPI’s methodology.
Aligning with the Task Force on Climate-related Financial Disclosures (TCFD)
In June 2017 the TCFD set-out recommendations for voluntary climate-related financial disclosures, with the objective of strengthening access to company-specific climate-risk data. To-date, institutional investors with more than US$ 25 trillion AUM have backed these recommendations.
The recommendations enable companies to effectively measure and assess risks, helping investors make more informed investment decisions. They focus on four core themes:
- Governance: disclosure of the organisation’s governance around climate-related risks and opportunities
- Strategy: disclosure of the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategies and financial planning
- Risk management: disclosure of how the organisation identifies, assesses and manages climate-related risks
- Metrics and targets: disclosure of the metrics and targets used to assess and manage relevant climate-related risks and opportunities
Following the release of the TCFD recommendations, FTSE Russell worked with TPI to conduct a full review of its climate-related indicators to ensure alignment of its methodologies and criteria. FTSE Russell now collects data on these indicators for its universe of 4,100 companies. In 2018 TPI will amend its existing indicators to take advantage of these new ones and wider data sets.
The final report outlining the recommendations of the TCFD can be found here.