FROM MSCI ESG RESEARCH LLC

Implied Temperature Rise
Aligning your investment strategy with a net-zero world

Key features of Implied Temperature Rise

As investors sharpen their focus on the financial
impacts of climate change, they may want to knowwhether the companies they’re investing in today
are aligning with the global goal of keeping warming
this century to well below 2 degrees Celsius (2°C) toprevent the worst climate harms.1
Implied Temperature Rise from MSCI ESG Research
is designed to show the temperature alignment ofcompanies, portfolios, funds and indexes with global
climate targets.

Easy-to-grasp metric to express portfolioalignment with global temperature targets
Covers companies’ Scope 1, 2 and 3
carbon emissions (may include estimates)

1.5°C Trajectory

Available for nearly 12,000 issuers2
Follow best practice recommendations
on measuring portfolio alignment set
out by GFANZ in November 2022.
“Measuring Portfolio Alignment”. Glasgow
Financial Alliance for Net zero (GFANZ),
November 2022

With its forward-looking estimate of company or
portfolio emissions, investors can use Implied
Temperature Rise to set decarbonization targets andsupport engagement on climate risk. The metric,
which is designed to support reporting for the Task
Force on Climate-related Financial Disclosures(TCFD), is part of a platform of analytical tools fromMSCI ESG Research that institutional investors
leverage to navigate the transition to net-zero at
every stage.

Based on data that can be easily examinedand traced, together with analysis ofcompanies’ decarbonization targets
Supports investors seeking to report tothe TCFDNet Zero 2050 Pathway

Supports investors seeking net-zerostrategy implementation
Part of MSCI’s climate scenario-analysis
solutions, available via MSCI ESG Manager,
MSCI Climate Lab, MSCI Analytics andother platforms

1 The Paris Agreement, United Nations (2015)
2 The company-level dataset will cover nearly 12;000 (not all of them are public) companies based on the MSCI ACWI Investable Market Index, as of August 2021

How Implied Temperature Rise works
Implied Temperature Rise compares the current andprojected greenhouse gas emissions of nearly every

2

publicly listed company across all emissions scopes

Project companies’future emissions,considering
their targets

3241.5(based on the company’s track record and stated
reduction targets) with its share of the remaining global
carbon budget for keeping warming this century well
below 1.5°C3. A company projected to emit carbon
below budget can be said to “undershoot” the budget; acompany projected to exceed the budget “overshoots” it.

11

Allocate and rollover a Net Zero
carbon budget

Implied Temperature Rise converts the overshoot

Convert over/undershoot in
degrees of Implied
Temperature Rise

2.8ºC

0.5MISALIGNED0or undershoot to an implied rise in average global

Compare 1 & 2 tomeasure under/
overshoot

2020

2025

2030

2035

2040

2045

temperatures this century, expressed in degrees Celsius

Annual Projected Carbon Emissions(°C). An implied temperature of 1.5°C, for instance,

Net Zero carbon budget decarbonization pathway

2050

Absolute Carbon Budget Overshootindicates that a company is projected to remain within

Absolute Carbon Budget Undershootits share of a carbon budget that would keep warming
this century to 1.5°C. An implied temperature of 2.5°C
or 3°C, in contrast, would show that the company’semissions align with temperatures that keep rising,

About carbon budgets

bringing greater harms.

Implied Temperature Rise rests on a so-called remaining carbon budget, which refers to the maximum amountThe portfolio-level Implied Temperature Rise comparesof net greenhouse gas emissions that countries – or companies – can put into the atmosphere without

the sum of projected greenhouse gas emissions
against the sum of carbon budgets for the underlying
constituents or holdings. The estimated carbon budget
overshoot or undershoot for the portfolio in question

causing the corresponding rise in global temperatures to exceed a given level. MSCI estimates and compares
companies’ projected emissions with the global carbon budget, based on carbon budgets calculated by theIPCC. Companies likely to generate emissions below their allocated budget are said to “undershoot” it while
those projected to exceed the budget “overshoot” it.

converts to a degree of temperature rise.

3 MSCI uses IPCC (Intergovernmental Panel on Climate Change) guidance to calculate a global 2°C carbon budget: “The IPPC Special Report on Global Warming of 1.5 °C,” sets the remaining global carbon budget for varying temperaturerises and probabilities (Table 2.2 at page 108 of the report).

Overview of methodology
Assess the companies’ carbon budget
Determine what the emissions budgets of publicly listedcompanies need to be to align with global temperature
goals, based on their greenhouse gas emissions as ashare of the global carbon budget.
Chart companies’ potential future emissions
Project companies’ carbon emissions through 2050
based on their reported and estimated emissions as wellas their stated reduction targets.
Calculate whether companies overshoot or undershoottheir carbon budget
Compute the excess or shortfall in issuers’ cumulative
projected emissions as a share of a remaining global
budget for keeping within such key thresholds as 1.5°C.
Convert the relative excess or shortfall to an Implied

Create a cohesive net-zero strategy
Path to net-zero emissions. Implied

Client communication. Asset and wealthTemperature Rise equips investors to assessmanagers can use Implied Temperature Rise

the progress of companies, portfolios,

to show clients how investment portfolios

funds and benchmarks toward driving downalign with global climate goals.

greenhouse gas emissions to net-zero by themiddle of this century.

Facilitates reporting. Implied Temperature
Rise is designed to align with the reporting

Target-setting and climate risk management.

recommendations by the Task Force on

Investors can use Implied Temperature Rise

Climate-related Financial Disclosures

to inform their climate risk management, set(TCFD) 4. With its coverage of nearly 12,000

evidence-based decarbonization targets andissuers and all greenhouse gas emissions

optimize portfolios.

scopes, the tool supports reporting in lineEngagement. Implied Temperature Risecan support dialogue with companies onclimate risk.

Temperature Rise
Translate the relative deviation (positive or negative) intoa temperature that reflects the climate response to a
specific quantity of emissions as if the whole economy
had the same carbon budget deviation as the company(or portfolio) in question.
You can download the methodology here.

4 MSCI uses the NGFS Net Zero 2050 scenario to calculate a global Net Zero 2050 carbon budget (aligned with a 1.55C temperature).

with evolving disclosure requirements.

Powering better investment decisions
Innovation
MSCI’s Climate Risk Center is an industry leader in climate change risk analytics, modeling and methodology. Carbon Delta, which MSCI acquired in 2019, has pioneered a series ofstate-of-the-art models for climate-scenario analysis.
A powerful platform
MSCI Net-Zero Solutions is powerful platform for building climate-resilient portfolios at every stage, from risk management and benchmark selection to reporting.
Forward-looking
Our solutions consider a of range climate risk and opportunities, based on forward-looking analysis of both transition and physical risks.
The highest-quality data
Industry-leading datasets from MSCI cover more than 12,000 issuers and greater than 95% of global equity, fixed income and real-estate markets.
Decision-useful
Scenario-analysis tools from MSCI assess the impact of climate-related risks and opportunities for each issuer on the valuation of its equity and debt.

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About MSCIMSCI ESG Research products and services are provided
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Research LLC. is a Registered Investment Adviser
under the Investment Advisers Act of 1940 and a
subsidiary of MSCI Inc.

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tools and services for the global investment community.
With over 50 years of expertise in research, data andtechnology, we power better investment decisions byenabling clients to understand and analyze key driversof risk and return and confidently build more effective
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