Tracking national greenhouse gas (GHG) reduction commitments is key to enabling alignment with the objectives of the Paris Agreement. The Implied Temperature Rise (ITR) metric, which uses countries’ past and projected future GHG emissions to estimate their contribution to global temperature rise, is an important progress indicator.
We apply the ITR metric to assess and quantify 132 countries’ commitments with respect to global climate goals, and to estimate corresponding transition risks for sovereigns. This paper explores the most recent updates to the robust methodology driving our analysis.
What does our research mean for investors?
The implications of our research extend beyond academic circles to impact investors and financial stakeholders. By providing a robust methodology for assessing implied temperature rise and climate alignment across countries, our research offers critical insights for investors seeking to incorporate climate risk into their decision-making processes.
Understanding the gap between countries' projected emissions and their commitments can inform climate-focused investment strategies. Investors can harness our ITR data to identify regions that are either leading or lagging on climate action, thus assessing risks and opportunities associated with climate change mitigation and adaptation efforts.
Points of differentiation:
- Our Implied Temperature Rise methodology relies on calculating a greenhouse gas (GHG) “budget” for each country using a purpose-built LSEG model. This “fair-share” approach allows us to determine the gap between a country's projected emissions and the emission levels required for alignment with the Paris Agreement over varying time horizons
- The results are then integrated into our final ITR equation, which provides a granular breakdown distinguishing between temperature rise caused by CO2 and non-CO2 emissions