Approach in which a company’s or issuer’s ESG performance is compared with that of its peers based on a sustainability rating. All companies or issuers with a rating above a defined threshold are considered as investable.
Approach in which a company’s or issuer’s environmental, social and governance (ESG) performance is compared with that of its peers (e.g.in the same sector or category) based on a sustainability rating. All companies or issuers with a rating above a defined threshold are considered investable. The threshold can be set at different levels (e.g. 30% best performing companies or all companies that reach a minimum ESG score).
Climate-related risks can drive financial risks such as credit, market, liquidity and insurance risks for financial institutions and pension plans. They can also lead to strategic and operational risks or reputational damage. Mismanagement of these risks can affect a financial institution’s or pension plan’s safety and soundness.
An exercise without scenarios, assessing changes in portfolios’ risk attributes by changing some of the inputs in financial models based on shading and classification of exposures into ‘green’ versus ‘non-green’ (which determines an exposure’s vulnerability to climate-related events and policies).
Assessment featuring fully fledged scenarios that map out possible future development paths of transition variables (e.g. carbon prices), physical variables (e.g. temperature increases) and the related changes in macro variables (e.g. output in different sectors, GDP, unemployment) and financial variables (e.g. interest rates). These scenarios are then translated into changes in portfolio (risk) attributes
Efforts to mitigate and adapt to climate change also produce opportunities for organizations, for example, through resource efficiency and cost savings, the adoption of low-emission energy sources, the development of new products and services, access to new markets, and building resilience along the supply chain.
Conditional exclusions of companies based on negative business practices, such as breaches of certain norms, regulations or global ESG standards (often referred to as norms-based exclusions, e.g. systematic violation of human rights).
a measurable, science-based and time-bound trajectory towards alignment with the objectives of the Paris Agreement by reducing Scope 1, 2 and 3 carbon emissions as referred to in point (1)(e) of Annex III.
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