Wealth Monaco met Laurent Babikian, head of CDP’s European capital markets team, who agreed to present two CDP environmental rating methods to us.
Founded in 2000, the CDP formerly called the Carbon Disclosure Project, is a global non-profit, environmental impact organization whose ambition is to transform capital markets through environmental reporting (impacts on climate, deforestation, water security) and make environmental risk management a new standard.
CDP is one of the main providers of extra-financial data to international rating agencies. For Laurent Babikian, there is now a real challenge in finding a common language in ESG.
«To achieve this, you need the alphabet on the one hand, and the grammar on the other. The alphabet corresponds to the European taxonomy which is complicated but under construction and which will be in place by 2022; grammar is the standard for ESG reporting, which is currently being debated between the United States and Europe »Laurent Babikian – Head of the European Capital Markets team for CDP
CDP’s goal is to increase the market transparency about climate, water and forest related risks and opportunities so as to enable the financial flows to move from “brown assets” to “green assets” : Climetrics which provides a global assessment of the risks and opportunities linked to a fund’s climate, and the CDP Temperature Ratings, which provides a temperature trajectory of companies and funds based on the companies in which it invests.
The Climatrics system independently rates thousands of actively managed funds and exchange-traded funds (ETFs) to provide investors with transparency about climate-related risks when comparing funds.
The rating given to the fund is symbolized by the emblem of a leaf, and measures the portfolio’s level of exposure to climate risks and opportunities, as well as the fund’s investment policy and the public action of the asset manager. on climate change. Scores range from 1 to 5 leaves when managers’ climate governance is well above average
The methodology of Climetrics consists of 3 sub-evaluations, the first of which is to take into account up to 10% the commitment and governance of the asset manager; 5% of the rating is calculated based on the fund itself, and the remaining 85% corresponds to the portfolio, depending on the companies that compose it.
Only 2.65% of all rated funds, or 510 funds in total, score 5 leaves.
CDP Temperature Ratings
The innovative approach of this methodology lies in translating companies’ emissions targets into temperature pathway.
To help investors compare, report and reduce the temperature of their portfolios and products, the Temperature Rating dataset provides a temperature trajectory for 3,000 companies worldwide, based on reduction targets emissions covering all relevant emissions in a company’s value chain.
Temperature levels reflect the potential for long-term global warming if global GHG emissions were to decrease at the same rate as the business. Consequently, the indications of the Temperature Ratings of the CDP give investors a clear standard, based on scientific data and uniform in order to easily take the measure of the actions to be implemented in favor of a sustainable economy, and to offer investors the possibility of better managing the risks associated with the climate transition.
For fund managers, this solution enables them to sustain their portfolios and funds against climate change. The reference temperature for scientists being 1.5 ° to avoid the devastating and costly effects of global warming, ratings above these 1.5 ° are therefore supposed to alert all stakeholders, and lead them to choose less impactful companies.
Article: Joana Foglia – Interview : Laurent Babikian – Head of the European Capital Markets team – CDP