TPI's methodology
report: Management
Quality and Carbon
Performance
Version 4.0, November 2021

Simon Dietz, Beata Bienkowska,
Valentin Jahn, Nikolaus Hastreiter,
Vitaliy Komar, Antonina Scheer,
and Rory Sullivan

CONTENTS
1.

Introduction ............................................................................................ 3

2.

Design principles ..................................................................................... 5

3.

Management Quality versus Carbon Performance .................................. 6

4.1 Background ..................................................................................................................................... 8
4.2 Management Quality staircase with five levels ....................................................................... 8
4.3 Indicators ...................................................................................................................................... 10
4.4 Mapping to TCFD recommendations ....................................................................................... 13
4.5 Summary of changes made in 2021 ......................................................................................... 13

5. Carbon Performance assessment .............................................................. 14
6.The company assessment process and quality assurance .......................... 18
Bibliography .................................................................................................. 20
Disclaimer ..................................................................................................... 21
APPENDIX 1. Mapping of TPI’s management quality framework to TCFD recommendations222

1. Introduction
This is the fourth edition of TPI’s Methodology and Indicators Report. It provides thetechnical background to TPI’s assessments of Management Quality and Carbon
Performance, with a particular focus on Management Quality. We also publish
sectoral Methodology Notes on Carbon Performance, since the details of how toassess Carbon Performance vary between sectors. This report supersedes Version 3.0of the Methodology and Indicators Report, published in June 2019.
The report describes:
The design principles underpinning TPI and the TPI company assessment
process (Section 2)
A comparison and justification for developing Management Quality andCarbon Performance (Section 3)
The Management Quality framework, including the indicators used and how
companies are placed on the levels (Section 4)
A broad outline of how TPI assesses Carbon Performance (Section 5)
Quality assurance provisions and how company feedback is handled (Section
6)

The Transition Pathway Initiative (TPI) was established in January 2017. It is a global
initiative led by asset owners and supported by asset managers. As of November
2021, 115 investors globally have already pledged support for TPI; jointly they
represent nearly $40 trillion combined Assets Under Management and Advice.
TPI aims to evaluate what the transition to a low-carbon economy looks like forcompanies with a high impact on climate change, such as electricity utilities and oil
and gas producers. It also aims to assess the progress these companies are making
on the low-carbon transition. Companies are analysed in two ways:
1. Management Quality: TPI evaluates and tracks the quality of companies’
governance/management of their greenhouse gas emissions and of risks andopportunities related to the low-carbon transition.
2. Carbon Performance: TPI also evaluates companies’ carbon emissions against
different climate scenarios consistent with the UN Paris Agreement. It does
this by comparing companies in high-emitting sectors against each other andagainst sector-specific benchmarks, which establish the performance of an
average company that is aligned with goals of the Paris Agreement.

3

Figure 1. The TPI process.
TPI publishes the results of its analysis through an open access online tool hosted by
the Grantham Research Institute on Climate Change and the Environment at the
London School of Economics (LSE). Investors are encouraged to use the data,
indicators and online tool to inform their investment research, decision making,engagement with companies, proxy voting and dialogue with fund managers andpolicy makers, bearing in mind the Disclaimer that can be found at the end of the
document.
Further details of how investors can use TPI assessments can be found on our
website.

4

2. Design principles
The following high-level principles have guided our approach to designing the TPI
methodology:
1. Company assessments should be based solely on publicly available
information. There are two reasons for this. The first is that encouraging
companies to provide a better account of how they manage climate change
is a core objective of TPI. The second is to ensure that companies are assessedconsistently, thereby avoiding any suggestion that individual companies are
in any way favoured by the assessment methodology.
2. Indicators should be objectively assessable. That is, the users of TPI data andother stakeholders (including the companies themselves) should be able tounderstand why a company has met, or not met, a particular Management
Quality indicator, and how a company’s emissions performance has been
quantified.
3. Indicators of Management Quality should be relevant to all companies in all
sectors covered by TPI. The reason is that investors want to be able tocompare sectors and, when communicating with stakeholders, to be able todemonstrate the overall outcomes of their engagement.
4. Carbon Performance benchmarks should be sector-specific. The reason isthat different sectors of the economy (e.g. oil and gas production, electricity
generation and automobile manufacturing) face different challenges arisingfrom the low-carbon transition, including where emissions are concentrated
in the value chain, and how costly it is to reduce emissions.
5. TPI’s outputs should be useful to asset owners as they engage with companies
and with asset managers. Of particular importance is ensuring that TPI isrelevant and useful to asset owners with relatively little capacity or expertiseon climate change.
6. Indicators should link to, or build on, existing initiatives and disclosure
frameworks (e.g. the FSB Taskforce on Climate-related Financial Disclosures
or TCFD) as far as possible. That is, unless there is a compelling reason to dootherwise, the data used by TPI should be those already reported bycompanies or that are commonly requested by investors.
7. Indicators should be pitched at a high level of aggregation and apply to thecorporation as a whole. It is acknowledged that investors may wish to dig
deeper into specific aspects of practice or performance (e.g. to understandrisk and opportunity on a country-by-country basis). For these investors, TPI’s
data can be used in conjunction with other measures, such as those relating
to financial performance (e.g. sales, turnover) and those that provide a moregranular assessment of corporate climate action.

53. Management Quality versus Carbon
Performance
Our assessment of companies’ progress on the low-carbon transition is divided into
two parts: (1) Management Quality and (2) Carbon Performance.
Management Quality describes companies’ carbon management practices andgovernance, in other words their governance of greenhouse gas emissions and therisks and opportunities arising from the low-carbon transition. For example,
Management Quality indicators include whether a company has a climate-change
policy in place, to what extent it discloses its emissions, and whether the company
has allocated board responsibility for climate change.
Carbon Performance compares company’s emissions pathway against different
climate scenarios consistent with the UN Paris Agreement, for example the aim to
limit global warming to 1.5°C above the pre-industrial level.
Figure 2. TPI methodologies

One of the reasons why we assess Management Quality and Carbon Performance
separately is that research shows the relationship between them is by no means
clear cut [1]- [5]. The ideal scenario is that companies with robust, well-developed
carbon management systems and processes adopt business strategies that arealigned with the low-carbon transition. Conversely companies with weaknesses intheir carbon management systems and processes might be less likely to set
challenging emissions targets.
However, at any particular moment one can find examples of companies with goodcarbon management systems, who nonetheless have high emissions, and vice versa.
This might be because the highest-emitting companies are forced to place thehighest priority on reducing those emissions.
There is some evidence to suggest that, while good carbon management appears
unrelated to current emissions, it leads to lower future emissions, because
companies with good carbon management are more likely to set and deliver on
stretching emissions targets.[6] Nonetheless some companies with good carbon
6management have not set ambitious emissions targets.[6] There are several
possible explanations for this. Some are external, such as weaknesses in the signals
being sent to business by national/local policy makers. Some are internal, such as
management scepticism about the business case for climate action, or limited
capacity to make the changes necessary to transition to a low-carbon economy.
There are also cases where the converse applies, i.e., companies have set ambitious
targets, but lack the knowledge, management systems or capacity to implement
them.
Ultimately Management Quality assessment focuses on processes, while Carbon
Performance focuses on decarbonisation ambition/commitment. Together they areintended to provide a holistic view of companies’ progress on the low-carbon
transition.

7

4.

Management Quality assessment

4.1 Background
TPI’s Management Quality methodology has been developed through an iterative
process of research, testing and review. The main elements of this work have been:•

Literature Review. It has been desirable to align our work with other existing
initiatives and disclosure frameworks, including the indicators requested by
CDP, the Climate Disclosure Standards Board and the Global Reporting
Initiative, and the recommendations of TCFD. We have also drawn inspirationfrom the way investors articulate their expectations of companies on othersustainability-related issues, such as the Access to Medicines Index, theAccess to Nutrition Index and the Business Benchmark on Farm Animal
Welfare.

•Testing the Indicators. TPI’s original Management Quality framework, the2018 revision and the 2019 revision have been extensively piloted on samplesof FTSE Russell data1. For the 2019 revision, we tested various permutations of
the framework on a sample of 49 companies, all of which had been assessedby TPI, under version 2.0 of the Management Quality framework, in 2017.
When conducting these tests, we sought to answer a number of different
questions, such as: are the necessary data available to generate theindicators and, if not, are there alternative data that could provide the same
insights? Do the indicators and the framework generate meaningful results,
for example do they effectively differentiate between companies? How do theresults compare with other measures of corporate climate-change
performance (e.g. from CDP)? Can the indicators be assessed objectively andconsistently? Are the results sensitive to the inclusion/exclusion of specificquestions?

•

Peer Review. Drafts of the framework have been shared with TPI’s TechnicalAdvisory Group and with its Steering Group for comment. The first draft
reviewed 2017 experience and provided a menu of options for revising theframework. The second and third draft focused on a single proposed
framework and posed a series of specific questions to members of the Groups
about, for example, how stringent certain indicators should be and where
they should sit in the framework.

4.2 Management Quality staircase with five levels
Companies tend to implement their carbon management systems and processes ina relatively staged and structured manner. They often start by publicly
acknowledging the relevance of climate change to their business and developing ahigh-level policy or statement. They then tend to set some relatively short-term,
process-oriented targets, before progressively extending the duration and stringencyof their targets, and defining these in a more precise, quantitative way. A similar
phenomenon is often seen in reporting: companies tend to start by reporting on theoperational (or Scope 1 and 2) carbon emissions from part of their business, and1 This 2021 revision has not been piloted because no new Management Quality indicators were added.

8then progressively extend this reporting to apply to more of the business and, intime, to cover some of the emissions from their supply chains and from the use of
their products (Scope 3 emissions).
Accordingly, TPI’s Management Quality framework tracks the progress of companies
through the following five levels:•

Level 0 – Unaware of (or not Acknowledging) Climate Change as a Business
Issue.

•

Level 1 – Acknowledging Climate Change as a Business Issue: the company
acknowledges that climate change presents business risks and/or
opportunities, and that the company has a responsibility to manage its
greenhouse gas emissions. This is often the point where companies adopt a
climate change policy.

•

Level 2 – Building Capacity: the company develops its basic capacity, its
management systems and processes, and starts to report on practice andperformance.

•

Level 3 – Integrating into Operational Decision-Making: the company
improves its operational practices, assigns senior management or board
responsibility for climate change and provides comprehensive disclosures on
its carbon practices and performance.

•

Level 4 – Strategic Assessment: the company develops a more strategic andholistic understanding of risks and opportunities related to the low-carbon
transition and integrates this into its business strategy and capital
expenditure decisions.

Figure 3. The Management Quality staircase

Some companies are still at an early stage of establishing carbon management andreporting processes, whereas others have assessed the resilience of their businesses
and business models to a range of future low-carbon scenarios, published details of
their low-carbon research and development (R&D) and investment strategies, andaligned their strategic key performance indicators (KPIs) on climate change with
their executive incentives.
9Up to 19 specific Management Quality indicators/questions are used to map
companies on to these five levels. These are set out in detail below. The data
underpinning the indicators are provided by FTSE Russell.
With the exception of Level 0, companies need to be assessed as Yes on all of thequestions pertaining to a level, before they can advance to the next level. We also
recognise companies that meet all the TPI indicators – i.e. that return a perfect
Management Quality score – as ‘Four star’ companies.
Companies can move in both directions on the Management Quality staircase andmovement can come about either because companies’ management practices
change, or because the set of indicators used to sort companies on to different levels
evolves.
4.3 Indicators
Table 1 lists 2021 TPI Management Quality indicators and provides explanatory notes.
Table 1. TPI Management Quality framework, including indicators
LEVEL 0: UNAWARE OF (OR NOT ACKNOWLEDGING) CLIMATE CHANGE AS A BUSINESS ISSUE
Question 1

Does the company acknowledge climate change as a significant issue for thebusiness?
[If the company does not acknowledge climate change as a significant issue
for the business, it is placed on Level 0]

Notes

Companies are assessed as Yes if they:••••

Recognise climate change as a relevant risk and/or opportunity for thebusiness (Q2); or
Have a policy or an equivalent statement committing them to takeaction on climate change (Q3); or
Have set greenhouse gas emission reduction targets (Q4); or
Have published information on their operational greenhouse gas
emissions (Q5).

LEVEL 1: ACKNOWLEDGING CLIMATE CHANGE AS A BUSINESS ISSUE
Question 2

Does the company recognise climate change as a relevant risk and/or
opportunity for the business?

Notes

Companies are assessed as Yes if they demonstrate recognition of climatechange as a relevant risk and/or opportunity to the business, or if they haveincorporated at least two of the following, more advanced management
practices, namely they:
•
•
•
•
•
•
•

Question 3

Have a process to manage climate-related risks (Q12);
Have set long-term quantitative targets for reducing their greenhousegas emissions (Q14);
Incorporate climate change performance into remuneration for senior
executives (Q15);
Incorporate climate change risks and opportunities in their strategy(Q16);
Undertake climate scenario planning (Q17);
Disclose an internal price of carbon (Q18);
Ensure consistency between their climate change policies and thepositions taken by trade associations of which they are members(Q19).

Does the company have a policy (or equivalent) commitment to action on
climate change?

10NotesCompanies are assessed as Yes if they have a published policy or commitment
statement on climate change that commits them to addressing the issue, orto reducing or avoiding their impact on climate change (e.g. to reduce
emissions or improve their energy efficiency).
LEVEL 2: BUILDING CAPACITY

Question 4

Has the company set greenhouse gas emission reduction targets?

Notes

Companies are assessed as Yes if they have greenhouse gas emissions
reduction targets. These targets may cover Scopes 1, 2 and/or 3, and they may
be quantified or unquantified.
This question is less demanding than Questions 7 and 14, which requirecompanies to have set quantified targets and for those quantified targets tobe long-term, respectively. Companies that are assessed as Yes on Question 7,
or Yes on Questions 7 and 14, are automatically assessed as Yes on Question 4.

Question 5

Has the company published information on its operational (Scope 1 and 2)
greenhouse gas emissions?

Notes

Companies are assessed as Yes if they report on their Scope 1 and 2, or their
Scope 1, 2 and 3 emissions. Companies that only report Scope 1 emissions areassessed as No.
LEVEL 3: INTEGRATING INTO OPERATIONAL DECISION-MAKING

Question 6

Has the company nominated a board member or board committee with
explicit responsibility for oversight of the climate change policy?

Notes

Companies are assessed as Yes if they provide evidence of clear board or
board committee oversight of climate change, or if they have a named
individual/position responsible for climate change at board level.

Question 7

Has the company set quantitative targets for reducing its greenhouse gas
emissions?

Notes

Companies are assessed as Yes if they have set quantified targets to reducegreenhouse emissions in relative or absolute terms (Scopes 1, 2 and/or 3).
This question is more demanding than Question 4, as companies must haveset quantitative targets to reduce emissions. This question differs from
Question 14, which asks whether companies have set quantified targets for
reducing greenhouse gases over the long term (i.e. targets that are more than
5 years in duration). Companies that are assessed as Yes on Question 14 areautomatically assessed as Yes on this question.

Question 8

Does the company report on Scope 3 emissions?

Notes

Companies are assessed as Yes if they report on Scope 3 emissions separately,
either in total or in one or more categories, or if they provide a total for Scope
1, 2 and 3 emissions.

Question 9

Has the company had its operational (Scope 1 and/or 2) greenhouse gas
emissions data verified?

Notes

Companies are assessed as Yes if their operational greenhouse gas emissions
have been independently verified by a third party, or if they state theinternational assurance standard they have used and the level of assurance.

Question 10

Does the company support domestic and international efforts to mitigate
climate change?

Notes

Companies are assessed as Yes if they demonstrate support for mitigatingclimate change through membership of business associations that aresupportive, and if they have a clear company position on public policy andregulation.

Question 11

Does the company have a process to manage climate-related risks?

11NotesCompanies are assessed as Yes if they have integrated climate change into
multi-disciplinary company-wide risk management, or if they have a specificclimate-related risk management process.

Question12(applicable
to somesectors only)

Does the company disclose materially important Scope 3 emissions?

Notes

Scope 3 emissions are diverse and many companies only disclose in a sub-set
of categories. In some sectors, particular categories of Scope 3 emissions arematerially important, in the sense of being a large share of lifecycle emissions.
In these sectors, we require companies to specifically disclose emissions in therelevant category or categories.
For example, in automobile manufacturing, coal mining, and oil and gas
production, we ask: does the company disclose Scope 3 emissions from use ofsold products?
LEVEL 4: STRATEGIC ASSESSMENT

Question 13

Does the company disclose its membership and involvement in organisations
or coalitions dedicated specifically to climate issues?
The company discloses:(a) Its memberships in specific organisations dedicated to climate-related
issues(b) Its involvement in these organisations

Question 14

Has the company set long-term quantitative targets for reducing its
greenhouse gas emissions?

Notes

Companies are assessed as Yes if they have set quantified, long-term targets(i.e. more than 5 Years in duration) to reduce greenhouse emissions in relative
or absolute terms (Scopes 1, 2 and/or 3).
This question is more demanding than Question 7, as the targets must not
only be quantitative, they must also be long-term.

Question 15

Does the company's remuneration for senior executives incorporate climatechange performance?

Notes

Companies are assessed as Yes if executive remuneration incorporates climatechange performance.

Question 16

Does the company incorporate climate change risks and opportunities in theirstrategy?

Notes

Companies are assessed as Yes if they detail how they incorporate climatechange risks and opportunities in their strategy (mitigation, new products,
R&D, etc.), and if they disclose the impact of climate change risks andopportunities on financial planning (OPEX, CAPEX, M&A, debt).

Question 17

Does the company undertake climate scenario planning?

Notes

Companies are assessed as Yes if they mention the 2 degrees scenario in
relation to business planning or confirm they have conducted climate related
scenario analysis, and if they describe the business impact of one or moreclimate scenario analysis.

Question 18

Does the company disclose an internal price of carbon?

Notes

Companies are assessed as Yes if they have and disclose their internal carbon
price.

Question 19

Does the company ensure consistency between its climate change policy andthe positions taken by trade associations of which it is a member?

12

NotesCompanies are assessed as Yes if they have a stated policy or commitment toensure consistency between their climate change policy and the position takenby the trade associations of which they are members, and for responding
appropriately in those instances where the trade association positions is
significantly weaker than or contradicts that of the company.

4.4 Mapping to TCFD recommendations
TCFD has made recommendations on company disclosures on climate change infour areas:
1. Governance: companies’ governance around climate-related risks andopportunities.
2. Strategy: the actual and potential impacts of climate-related risks andopportunities on the organization’s businesses, strategy, and financial
planning.
3. Risk management: the processes used by the organization to identify, assess,and manage climate-related risks.
4. Metrics and targets: the metrics and targets used to assess and manage
relevant climate-related risks and opportunities.
Appendix 1 shows how TPI’s indicators map on to the TCFD framework.
4.5 Summary of changes made in 2021
Recognising the need to step up ambitions to limit warming to 1.5C, we have revised
the Management Quality indicator that considers companies’ membership of lobby
groups active on climate issues.
The old indicator (MQ11) was: Does the company disclose its membership andinvolvement in trade associations engaged in climate issues?
The new indicator (MQ13) assesses a company’s membership of organisations
specifically dedicated to climate issues: Does the company disclose its membershipand involvement in organisations or coalitions dedicated specifically to climate
issues?
As this updated indicator asks about companies’ involvement in organisations
dedicated specifically to climate issues, it is more demanding than its predecessor,
so we have moved it on to Level 4.

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5. Carbon Performance assessment
TPI’s Carbon Performance assessment is based on the Sectoral Decarbonization
Approach (SDA)2.[7] The SDA translates greenhouse gas emissions targets made at
the international level (e.g., under the Paris Agreement to the UN Framework
Convention on Climate Change) into appropriate benchmarks, against which theperformance of individual companies can be compared.
The SDA is built on the principle of recognising that different sectors of the economy(e.g., oil and gas production, electricity generation and automobile manufacturing)
face different challenges arising from the low-carbon transition, including whereemissions are concentrated in the value chain, and how costly it is to reduce
emissions. Other approaches to translating international emissions targets into
company benchmarks have applied the same decarbonisation pathway to all
sectors, regardless of these differences.[8]Therefore, the SDA takes a sector-by-sector approach, comparing companies withineach sector against each other and against sector-specific benchmarks, which
establish the performance of an average company that is aligned with internationalemissions targets.
Applying the SDA can be broken down into the following steps:•

A global carbon budget is established, which is consistent with internationalemissions targets, for example keeping global warming below 2°C. To do thisrigorously, some input from a climate model is required.

•

The global carbon budget is allocated across time and to different regions andindustrial sectors. This typically requires an integrated economy-energy
model, and these models usually allocate emissions reductions by region andby sector according to where it is cheapest to reduce emissions and when(i.e., the allocation is cost-effective). Cost-effectiveness is, however, subject
to some constraints, such as political and public preferences, and theavailability of capital. This step is therefore driven primarily by economic andengineering considerations, but with some awareness of political and social
factors.

•

In order to compare companies of different sizes, sectoral emissions arenormalised by a relevant measure of sectoral activity (e.g., physicalproduction, economic activity). This results in a benchmark path for emissions
intensity in each sector:
Emissions intensity =Emissions
Activity

Assumptions about sectoral activity need to be consistent with the emissions
modelled and therefore should be taken from the same economy-energy
modelling, where possible.
•

2

Companies’ recent and current emissions intensity is calculated, and their
future emissions intensity can be estimated based on emissions targets they

The Sectoral Decarbonization approach (SDA) was created by CDP, WWF, WRI in 2015.

14

have set (i.e., this assumes companies exactly meet their targets).3 Together
these establish emissions intensity paths for companies.
•

Companies’ emissions intensity paths are compared with each other and withthe relevant sectoral benchmark pathway.

TPI’s benchmarks. In the majority of sectors, TPI uses the following sectoral
benchmark pathways/scenarios4:
A 1.5 Degrees scenario, which is consistent with the overall aim of the Paris
Agreement to hold “the increase in the global average temperature to well
below 2°C above pre-industrial levels and to pursue efforts to limit thetemperature increase to 1.5°C above pre-industrial levels”.[9] This scenario
is consistent with a carbon budget that limits the global mean temperaturerise to 1.5°C with a 50% probability.[10]A Below 2 Degrees scenario, which is also consistent with the overall aim of
the Paris Agreement to limit warming, albeit at the middle of the range of
ambition. This scenario is consistent with a carbon budget that limits theglobal mean temperature rise to 1.65°C with a 50% probability.[11]A National Pledges scenario built on the IEA’s 2020 Stated Policies Scenario,
which takes into account policies which were in place or under development
up to at least mid-2020, depending on the sector. According to the IEA, thisaggregate is currently insufficient to put the world on a path to limit
warming to 2°C, even if it will constitute a departure from a business-asusual trend. This scenario is consistent with a carbon budget that limits theglobal mean temperature rise to 2.6°C by 2100 with a 50% probability.[11]Figure 4. TPI benchmarks in oil and gas sector

Alternatively, future emissions intensity could be calculated based on other data provided by companies
on their business strategy and capital expenditure plans.
3

4 The current benchmarks replace the ones from the Methodology note v3.0: Paris Pledges, 2 Degrees

and Below 2 Degrees.

15

Source of data for scenarios. The main source of data for these scenarios is
the modelling of the International Energy Agency (IEA), via its biennial Energy
Technology Perspectives reports [11-12], World Economic Outlook reports [1314], and Net Zero Emissions by 2050 report.[10]Sectors assessed on different benchmarks. There are few sectors assessed by TPI withdifferent benchmark concepts and/or data:•

In autos, different benchmarks are used to reflect additional sources of
uncertainty, notably the extent to which shifting demand for different
transport modes will affect what is required of companies. These are: 2
Degrees (High Efficiency), 2 Degrees (Shift-Improve) and Paris Pledges. They
are based on data provided by the International Council on Clean
Transportation (ICCT) and the carbon budgets associated with thesebenchmarks, albeit similar, may differ from the benchmarks based on the IEA
scenarios. Please see TPI's methodology note for the auto sector for further
information.

•

In airlines and shipping, we use an International Pledges benchmark insteadof National Pledges, because the pledges in these sectors are primarily set out
by international bodies, the International Civil Aviation Organisation (ICAO)
and the International Maritime Organisation (IMO), respectively, rather thanby national commitments.

•

In aluminium and paper, we use Below 2 Degrees, 2 Degrees and Paris Pledges
benchmarks, which are based on the IEA’s 2017 scenarios due to the limited
sectoral coverage of IEA’s recent scenarios.[12]Source of company data. In line with TPI’s philosophy, companies’ emissions
intensity paths are derived from public disclosures (including responses to the annual
CDP questionnaire, as well as companies’ own reports, e.g., sustainability reports)
16

as far as possible. In particular, only company disclosures are used to estimate recent
and current emissions intensity, and company disclosures are also the source of
information on targets for future emissions.
Further details of how the Carbon Performance methodology is applied in specificsectors can be found in TPI’s sectoral Methodology Notes at the TPI website.

17

6.The company assessment process andquality assurance
TPI’s Management Quality assessments are based on data provided by FTSE Russell,
specifically the data and indicators it uses to develop its ESG Ratings. 5 These datago through a four-stage quality assurance process before being provided to TPI:
1. Initial assessment and analyst quality control. A FTSE Russell analyst conducts
the initial company assessment, including a review of the previous year’s
assessment to assess if a change in data from the previous year is justified.
This is followed by a second analyst carrying out a check on the company
analysis and by a separate, more experienced, analyst reviewing company
assessments to ensure accuracy and consistency. Once FTSE completes its
data quality control, TPI analysts carry out an additional quality check incoordination with FTSE.
2. Company review. FTSE Russell contacts the company, providing it with theopportunity to review the data collected. FTSE Russell’s research process only
allows publicly available information to be used.
3. Trend quality control. Senior FTSE Russell analysts conduct trend analysis tolook for inconsistent data and data outliers. They also conduct focused quality
control on particular indicators, based on their understanding of indicatorsthat are more vulnerable to errors.
4. Quality management. FTSE Russell staff carry out a series of qualitymonitoring checks, focusing on both quantitative data consistency (e.g.
units, gaps, outliers) and qualitative data (e.g. checking interpretation andcriteria guidance). The results of these checks are shared with analysts inorder for them to implement changes and enhance their quality control
processes. The process held by FTSE Russell is complemented by the quality
checks performed by the TPI analysts.
TPI team carries out its own Carbon Performance assessment from beginning toend, as follows:
1. Initial data collection and review. An analyst collects Carbon Performancedata from company disclosures and conducts a detailed review to confirm
that the data are complete and consistent with those collected by FTSE
Russell, where the data overlap. Any inconsistencies are discussed with FTSE
Russell.
2. Initial findings review. Following the application of TPI’s Management Quality
and Carbon Performance methodologies to the data, a different analyst
reviews each company’s assessment in detail, and we look at overall trends
across companies with a view to identifying outliers and unusual patterns.
3. Company review. Once we have completed the company assessments, wewrite to each of the companies with its draft TPI assessment (as well as the
FTSE Russell data that underpin the Management Quality assessment),

5 For further information see http://www.ftse.com/products/downloads/ESG-ratings-overview.pdf?800.

18

requesting that the companies review their assessments and confirm theaccuracy of the underlying data.
4. Final assessment. We review company responses and amend
their assessments if their feedback is judged to have merit. Further details of
our procedures for incorporating company feedback are contained in Box 1.
Box 1. Responding to companies
Allowing companies the opportunity to review and, if necessary, correct theirassessments is an integral part of TPI’s quality assurance process. We sendeach company its draft Carbon Performance assessment and the data that
underpin that assessment, while FTSE Russell send the Management Quality
assessment, offering companies the opportunity to review and comment.
If a company seeks to challenge its result/representation, our process is asfollows:•

TPI reviews the information provided by the company. At this point,
additional information may be requested.

•

If it is concluded that the company’s challenge has merit, theassessment is updated.

•

If it is concluded that there are insufficient grounds to change theassessment, TPI publishes its original assessment.

•

If the company requests an explanation regarding its feedback after the
publication of its assessment, TPI explains the decisions taken.

•

If a company requests an update of its assessment based on data
publicly disclosed after the research cut-off date communicated to thecompany, TPI can note the new disclosure on the company’s profile on
the TPI website.

•

If a company chooses to further contest the assessment and reverts tolegal means to do so, the company’s assessment is withheld from the
TPI website, and the company is identified as having challenged its
assessment.

19

BIBLIOGRAPHY[1] S. B. Hughes, A. Anderson and S. Golden, “Corporate environmental disclosures: arethey useful in determining environmental performance?,” Journal of Accounting andPublic Policy, vol. 20, no. 3, pp. 217-240, 2001.
[2] C. H. Cho and D. M. Patten, “The role of environmental disclosures as tools of legitimacy:
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21

APPENDIX 1. Mapping of TPI’s management quality framework to TCFD recommendations
Governance

Strategy

Risk management

Metrics and targets

Disclose the organization’s
governance around climate-relatedrisks and opportunities.

Disclose the actual and potential
impacts of climate-related risks andopportunities on the organization’s
businesses, strategy, and financial
planning where such information ismaterial.

Disclose how the organization
identifies, assesses, and manages
climate-related risks.

Disclose the metrics and targets
used to assess and manage
relevant climate-related risks andopportunities where suchinformation is material.

a) Describe the board’s oversight ofclimate-related risks andopportunities.

a) Describe the climate-related risks
and opportunities the organization
has identified over the short,medium, and long term.

a) Describe the organization’s
processes for identifying andassessing climate-related risks.

a) Disclose the metrics used by theorganization to assess climaterelated risks and opportunities inline with its strategy and risk
management process.

b) Describe management’s role inassessing and managing climaterelated risks and opportunities.

b) Describe the impact of climaterelated risks and opportunities on
the organization’s businesses,
strategy, and financial planning.

b) Describe the organization’s
processes for managing climaterelated risks.

b) Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhousegas (GHG) emissions, and therelated risks.

c) Describe the resilience of theorganization’s strategy, taking into
consideration different climaterelated scenarios, including a 2°C or
lower scenario.

c) Describe how processes for
identifying, assessing, andmanaging climate-related risks areintegrated into the organization’s
overall risk management.

c) Describe the targets used by theorganization to manage climaterelated risks and opportunities andperformance against targets.

Q10, Q11, Q16, Q17, Q18

Q11, Q16

Q4, Q5, Q7, Q8, Q9, Q12, Q14

Recommended disclosures

TPI indicators
Q1, Q2, Q3, Q6, Q13, Q15, Q19

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