Take part in a climate solution and build a data-driven portfolio in the process

There is no better time to engage in climate solutions than the present. 

Earth Week commitments by the public, private, NGO, and government organizations demonstrate how many are not only moving to more transformative, digitized solutions in 2021 but also to a new way of operating that centers on a net-zero goal.

One such announcement on April 20th was by management consulting firm McKinsey. The organization announced the launch of McKinsey Sustainability, describing it as a “new client-service platform with the goal of helping all industry sectors transform to get to net-zero by 2050 and to cut carbon emissions by half by 2030.”

Children running on meadow at sunset double exposure

“Natural climate solutions (NCS)—conservation, restoration, and land-management actions that increase carbon storage and avoid greenhouse-gas emissions—offer a way to address both crises and to increase resilience as the climate changes,” McKinsey senior partners shared in a post earlier this year. “Climate action requires both the reduction of emissions and the removal of carbon dioxide already in the atmosphere. NCS can help with both, starting today.”

Decarbonization levers include building green businesses, repurposing high-carbon sets, and scaling nature-based solutions. All of these require significant investment and innovation. To better identify opportunities and align investments with climate targets, executive leaders and investors must use comparable metrics to ensure robustness and consistency.

“Measuring Portfolio Alignment: Assessing the position of companies and portfolios on the path to net-zero” by Portfolio Alignment Team includes key highlights around developing common building blocks:

  • As more countries legislate for net-zero, every sector of the economy will need to adapt. This also means that investors and lenders must identify risks and opportunities in the transition to a net-zero economy and demonstrate to stakeholders how investments align with climate targets.
  • Comparable metrics must follow criteria that are forward-looking, actionable, useful for decision-making, robust coverage across sectors, assets, and end-users.
  • The percentage of the portfolio with net-zero targets, deviation of a portfolio from a target or benchmark, and the degree warming metric are all useful to consider in measuring companies’ and portfolio alignment’s spectrum of sophistication.
  • The warming metric is estimated with three key steps: 1.) Translating carbon budgets into benchmarks; 2.) Assessing company-level alignment, and 3.) Assessing portfolio-level alignment. Nine key judgments also impact the metric. These judgments could lead to different capital allocation, facilitating different types of transition to net-zero (e.g., facilitating the flow of capital to areas that need it the most like expansion in renewables, reduction in fossil fuels, etc.).
  • Significant improvements in data and other inputs are needed to strengthen, considerate efforts; however, data improvements will also need methodologies to develop and converge around key judgments and minimum standards.
  • Developing transparent, robust, and decision-useful metrics of portfolio alignment will be an iterative process.

A warming metric – with its three key steps and nine judgments – is useful in developing and assessing a strategic path forward. Every company has an opportunity to participate and use their data findings to contribute to the collective net-zero goal.

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