 Welcome everyone and thank you for joining us today to discuss CISL and the investment leaders groups work on understanding the climate performance of investment funds and the new methodology developed with the group to convert emissions reporting into an intuitive degree Celsius metric. I'm delighted to be joined today by my esteemed colleagues, Dr Jake Reynolds and Dr Pablo Salas Bravo. Dr Jake Reynolds is the Executive Director of Sustainable Economy with responsibility for CISL's research, including the Prince of Wales Global Sustainability Fellowship Programme. Jake acts as Senior Advisor to CISL's Centre for Sustainable Finance, which develops practical thought leadership through long running collaborations with the investment banking and insurance industries. Dr Pablo Salas Bravo is the Prince of Wales Global Sustainability Fellow in Radical Innovation and Disruption at CISL. He has been working alongside the investment leaders group to explore and develop temperature scoring methods that effectively communicate fund climate impacts. Pablo is an interdisciplinary scholar whose background combines electrical engineering, extensive training in physics, mathematics, computer sciences and dynamic systems and postgraduate studies in economics and land economy. Over the next hour, Jake will outline the imperative for clear, transparent reporting to beneficiaries on the impacts of their investments before Pablo walks us through the methodology developed in collaboration with the investment leaders group to provide decision use for reporting to beneficiaries on their climate impacts. We'll also look at the underlying assumptions and explore different approaches to temperature scoring that are currently being developed before concluding with a Q&A session on the report and the method, so please do submit your questions during the discussion via the Questions tab. To set the scene, the University of Cambridge Institute for Sustainability Leadership is part of Cambridge University and has worked with leaders across finance, business and policy for over 30 years to develop leading solutions that drive a sustainable economy. We do that through developing applied research, convening leadership groups across finance, business and policy spaces through postgraduate and executive education programs and lastly through our accelerator program working with SMEs to scale sustainability impact. The work that we're discussing today is the result of an ongoing inquiry into effective investment impact measurement with the investment leaders group. A group of leading asset managers, owners and investment consultants convened by CISL's Centre for Sustainable Finance and supported by academics from within the university to advance sustainable investment by developing thought leading solutions and building sustainable finance capacity within membership organizations. I'm now going to hand over to Jake to discuss reporting the impact of investment portfolios. Thank you so much Lucy and welcome everybody, real pleasure to take part in this webinar today. First, a little bit of background really on why we have created a framework for measuring the impact of investments and in particular public market investments. It's a long running project for CISL as Lucy hinted and really occupies a central position in the work we do with the IRG. You may, next slide please Collette, you may have read some or all of these publications which have come out over recent years some of them this year from the IPCC launched its policy summary for the the 2021 review of where we are on the physical science for climate just this year caused IPCC published in the bottom right there called to arms really on climate change back in 2018 suggesting we need to aim for 1.5 degrees maximum warming not to that of course crisis created a stir at the time. In the meantime, we've had the best assessment that's in the middle there on biodiversity, fairly grim picture about the loss of nature. All over the world. We've had GS six from the United Nations with a much similar story. And on the social inequality side we've had at the United Nations world social report that was 2020 January 2020 just before the pandemic. And at that time, one of the headlines from that report was 70% of world population subject to rising inequality now just imagine that was before the pandemic hit. Imagine what the situation is now. So we have these, these reports from the scientific community which are saying very, very loud and clear both on the environmental and on the social fronts. All is not well, and exhorting everybody all stakeholders to, to wake up and actually act, particular governments of course but no one really can be of the view that governments, we can lay these challenges at the door of our own, it really truly is something which affects us all and we all have to take responsibility. So the question really is whether after the tragedy of the pandemic, perhaps during it, in many cases, we can seize collective you could just go back to the previous slide. Whether we can seize the moment to tackle challenges that have evaded us in the past can we use this pivot point to actually work in a fundamentally different way. To do that we would need a proper appreciation of number of things. Why economies concentrate wealth, rather than distributed more fairly, why we draw down on nature, rather than renew it, why we push problems like climate change into the future, rather than Now a key factor in all of this and collect you can, you can advance the slide now. A key factor in all this is finance or rather how we discriminate between finance that supports what we might describe as business as usual, a business as usual economy versus finance which alternatively supports the things that matter at a much more fundamental level I'm talking about public health, social inclusion, healthy soil, forests, clean water, clean air, stable climate. Each of which has immense economic value, often almost indeterminate in terms of how it supports economic activity, yet it rarely appears in prices. So how do we actually move finance from where we are now, notwithstanding the good progress which is being made to something which much more fundamentally invests in what you might describe as our insurance policies for the future. Next slide please Collette. One of our, I mean one of the, the really key questions which we're trying to address is in particular how the asset management and investment industries where such huge strides are being made at the moment to incorporate PTSD considerations, but within the context of lots of alternative very diverse sometimes confusing approaches to how we understand whether we're being successful. That's really the basis of our sustainable investment framework, an attempt to try and bring some solidity some robustness and some simplicity to the way in which we examine whether a fund for example, is its promises or in fact any investment fund is creating an impact, how it's creating an impact, what that impact actually is. So as we look across the spectrum of different approaches, we have to accept that if we're going to create a greener, sustainable or socially progressive society, we need to track how that finance is being deployed and what effect it is having. How does one do that when the assets in a typical fund are many. The issues behind sustainability are quite complex. And the data available to make judgments about that impact are quite limited. Well, we think this problem is particularly relevant to what you might describe as the end investor the investing public. You and me, from which much of the investment capital deployed by the industry actually derives. And we don't really believe that the public needs or wants, importantly wants to know all of the complexity of how those impact measurements are obtained. From our research, we understand that they are really trying to address a very simple question, which is the one on the screen at the moment is my money doing harm or good. An easy question to ask a very hard question to answer. But if we don't know the answer to that question about a fund where a member of the public is putting their savings or their pension. Or an insurance companies deploying capital generated from premier. Can we really say that the investment process is responsible. We're not sure we can. If it's possible to understand in perhaps slightly narrow terms whether an appliance like a fridge is is how it's performing environmentally all the nutritional content of a breakfast cereal why not for a fund. That was one of the conundrums we faced. Next slide slide please killer course when you ask a question like is my money doing harm or good you have to have some anchor on the word good we don't want to reinvent what good means so in our case we simply adopted the sustainable development goals from the UN. Why they're the closest thing I sometimes say that the world has to a strategy they were agreed by 193 governments they're not perfect. But they went through a process of five years of consultation and I think as a unifying construct of what good would be for the planet they don't do a bad job. So. In having sort of established whether or not we are. What what what direction of travel we need to go in through our investment. We can then look at how funds are stacking up against that next slide please collect. So to keep things simple we took the 17 SDGs. And we distilled them down into six impact themes you can see those in the middle basic needs well being climate stability resource security healthy ecosystems and decent work. You'll notice three of those are social in nature and three of them are environmental nature. And the example I giving you on the screen at the moment is for climate stability something we're going to talk about in more detail later. But if you look at the process of distillation on the on the left hand side we see for highly relevant SDGs, including the one directly on climate change distilled down into the climate stability theme in the middle. And then quantified through some very basic measures into both a measure of absolute performance in terms of emissions performance and we'll talk later about how that might be advanced into temperature scoring. And also relative performance in terms of how it compares with other funds were against in fact a benchmark a benchmark of choice for the funding question. And those measures can be calculated for any fund. We intended this originally for public markets and added it initially with equities but we're just looking at applying it to fixed income and there's no reason in principle why it can't be expanded to other asset classes. Next slide please. If we expand up from that one example on climate stability to the six themes as a whole. We arrive at this dashboard, which is what we describe as the sustainable investment framework, six measures six absolute absolute numbers relating to the performance, the outcomes, and a relative performance judgment which is illustrated through the color coding. So if you look carefully at what those numbers mean are all the environmental ones in fact lower numbers means lower footprint means better for the planet whereas underneath the three in green. In this example, higher numbers is actually better than the planet because they're socially positive metrics. This summary because I want to move on quickly towards our focus today on climate change and how one can create new and compelling measures of performance. The summary for the framework is really that the measures have derived from the STGs, the number of separate measures we've kept reasonably small, certainly less than the 17 STGs themselves. We hope that the areas we've chosen are meaningful for the public, not just specialists. They focus on outcomes of the investment process, not the inputs or the process behind the investment itself. They're universally applicable. We have a shall focus public markets, but we believe they could be extended further. They're transparent in terms of a published methodology. They're usable with today's data, which is quite important. Anyone can use this method on data downloaded from all of the usual providers and get results. And the thinking and the science behind the measures is actively in development as new data become available, new understandings about how companies interact with both society and the environment becomes clear. This is really a project in motion. We intend to keep it up to date and keep it refined as new opportunities exist. Thanks, Gillette. Next slide please. I'd very much like to pursue a change gear a little now and I'd like to concentrate our minds on one thematic area notable for a certain conference coming up in Glasgow later this year, obviously climate change. And if I may, I'd like to put a couple of questions to you, the audience. First of all, and the first one is, do the funds that you work with or invest in, if you're part of the industry, publicly disclose their climate performance. So think about think about a fund that you happen to be either invested in. Or you work as part of a team to run. Or simply a fund if you're not in the industry and you're not personally invested a fund that you may have in mind through a partner or through some other means just think about those funds. Do they publicly disclose their climate performance is the question. I'll give you a few moments to see if you can put some answers back to us. Second question. Do the funds you work with or invest in, excuse me, that is the first question. Do we have some results Jason fabulous. Okay. 33% of the respondents regard the funds that they're thinking about as disclosing publicly their climate performance. 42% believe they don't disclose their climate performance. And 25% unsure. I think that's really interesting because we're at a situation now where global attention is placed on climate change it has been of course steadily ratcheting up. And the fact that we have such a large number of funds which are not disclosing their performance in that respect is at one level quite understandable because the industry is where it is. But at another level, quite alarming, given that we don't have long to get this challenge under control. And I suspect, I can't quite tell which funds you were thinking about but I suspect that one of the reasons is that the funds that are disclosing maybe the funds, which have an overt commitment to becoming a more sustainable, sustainable activity. They may have a label they may be called green or sustainable or other socially progressive titles. Whereas I think the point of our discussion here is that all funds have impact, and potentially all funds need to be disclosing the climate performance. But certainly in this case, more funds not disclosing than were disclosing is quite interesting. Jason, I think we have another question. Okay. Looking at our second question. With the funds that do disclose their climate performance so that was some in the 30%. What method is actually used. Is it in house or external rating. A carbon emissions or intensity method. The percentage of assets aligned with the Paris agreement. Temperature score, potentially. Or some other method. So I'll give you a few moments for that. Jason, whenever you feel we're ready. Okay. Very interesting indeed. My attention, given the purpose of this webinar is immediately drawn to the temperature score method which is currently at 3%. So there are funds which are doing that, which is really interesting. But not many. And most are reliant upon some well. Either carbon emissions footprint or footprint intensity that's footprint by revenue or sales or some other. Some of the financial indicator. So many 44% are based around footprint. And many are based around ESG rating, which of course could be done internally if you're an asset manager with that kind of capability. Or a lot of part of the industry, or it could be an external rating imported from one of your service providers. 8% are rating are using a method based on alignment with the Paris agreement, which is interesting. Temperatures goals are partly in that space, but expressed as a temperature rather than a percentage of assets aligned with a particular ambition like the Paris agreement. Okay, fascinating. Well, thank you very much. I think one thing, which is clear, if we could sort of move on to the next slide now is diversity. We have a lot, even in this example, we have a lot of different approaches to disclosing climate performance. That's precisely the finding that we found in our two part series, which Lucy trailed at the beginning of this session, which looked at understanding the climate performance. Investment funds. And I'm just going to briefly run through the first part of that series and Pablo Salas is going to lead us through the second part, which looks at the methods of temperature score design. Now the first part of this series is quite interesting in that it explores different approaches. The diversity approaches which has just been revealed in the poll to how funds report measure and report that climate performance and we used a set of leading climate funds funds which have expressly stated their interest in addressing climate change on one respect or another. And one can one assumed that all of those funds were active in the measurement process and indeed that was the case. However, within that set of leading climate funds there was great variability of methods, and whilst each of them is justified in its own right. There's no reason why one shouldn't assess these kinds of relationships through a risk lens, or impact lens, or an alignment lens. The variability can inhibit comparison when there is no more universal approach to to provide, if you like, a regular way to understand all funds rather than the particular specialist approaches which one particular asset manager or another chooses to So comparison is somewhat inhibited but also potentially if you're non specialist member of the public the investing public. You may see a plethora of different approaches and not really be sure back to that question is my money doing harm or good, which ones are actually relevant to your personal interest as an investor. So good work, but highly variable I think was one of the conclusions we made. In terms of where we, we believe this analysis should go next we believe that investors need a simple universal way to understand their climate performance the climate performance their funds. In terms of how it aligns with what globally the ambition is the Paris ambition, keeping global temperature rise under two degrees preferably 1.5 The universal way to understand that across all funds not just simply climate funds or sustainable funds or green funds, but across the whole fund landscape, we believe would be not only valuable but increasingly essential. I also concluded that a sensible option for that measure is the temperature score because it's easily understood by the public expressed in degrees centigrade something people can relate to is based about the outcome. It's based on the outcome of the investment process not the, not the inputs to it in other words, it's what impact the fund is having on the real world. So finally, I'd like to conclude by just repeating that the second part of this series which was published just over the summer is looking at the question of if we were going to create a universal way for funds to explain their alignment with the Paris ambition how would we do that. Our opinion was that the temperature score was the right way. But even when one takes that decision, there's a lot of intricacies, a lot of design questions, a lot of assumptions, and even some variability in the way that those temperature scores are put together. And we've asked Pablo Salas, who is the lead author for that part to, to walk us through some of the choices, which needs to be made, and to illustrate how those choices can result in real results within two funds, which are managed by the IOG members. So this point I'd like to hand over to you Pablo. Thank you. Thanks, Jake for the fantastic introduction to the work that we are doing here. And it's a real pleasure to be here as well. My name is Pablo Salas and I'm a senior research associate here at Cambridge. And then here we're going to get just a little bit more technical to unpack what do we mean with a temperature score. So Colette if we can go to the next slide please. So let's start with kind of common ground here. A temperature score is a methodology that typically attaches a score to companies or portfolios based of course on the potential contribution to climate change. So for instance, let's imagine you have that as in the screen company or a set of companies, and you also have now a metric to measure the impact in terms of, and then you can compare the performance of these companies with a set of benchmarks. These benchmarks are typically based on the scenarios, but for now let's assume they are black box that actually we're going to open during this presentation. Now based on the comparison between the benchmark and the metric, the company receives a score, which can be in units of degrees Celsius or other type of indicate. You can also of course define an aggregation in order to evaluate one company or set of companies in the entire portfolio. So there are of course other indicators not using temperature as the score metric as very well, or to your question and the audience indicated. More generally, we talk about the fully alignment metrics, and by that we mean metrics that measure how aligned are companies or portfolios with respect to the Paris agreement parties. Now, temperature scores are a subset of those metrics. We argue that temperature score is particularly useful because it provides a very intuitive and simple way to check if a company is or not aligned with our kind of objectives. If you say a company is a two degree C companies, pretty much a lot of people can understand that. But if you say a company or a portfolio has 20 grams of CO2 per dollar, very few people will understand what you mean by that. So therefore, the typical score we believe is the best metric that we can use for a universal disclosure of climate alignment. Let's go to the next slide please. Over the last few years, the last people portfolio alignment metrics and particularly temperature scores has flourished. I think you can see in the screen. Just a sample, or many of the existing current metrics available in the market from MSCI, Arabic, CGP, and so on. Now, of course, having this metric is a very good thing because it showed that there is a growing demand for understanding the impact of investment on the environment, particularly on climate. A big question, particularly for you, the audience is, what metric should you use and why? And unfortunately, there is no clear answer to that question. The lack of comparability across methodologies is particularly troublesome. And I will show you that with one very real example. Let's go to the next slide please. The CGP party was used two different methodologies to analyze the temperature score of their equity and bond portfolios. They obtained very different results. They compare the carbon impact analytics methodology against the science-based 2 degrees C alignment or SB2A methodology. You can see in the screen the results of the 2018 exercise. There are almost this. Let's go back to the previous there. As you can see in the circles, there are almost 2 degrees Celsius difference in the score of the equity portfolio and 1 degree Celsius difference in the score of the bond portfolio. So how can it be that the same portfolio performs so differently with metrics that are supposed to be measured in the same. Now, if you read the report, you can find the text that you can see in the screen, but put it on very simple terms. What the report concludes is that one methodology included the targets of the companies in the metric, while the other methodology didn't. So in simple terms, what happened is that the two methodologies were measuring different things. And this example pretty much highlights one of the most relevant challenges of the field nowadays, the lack of comparability across methodologies. Let's go back to the next slide, please. Based on this challenge, we decided to get rid of the black box that we saw in the original diagram and build a methodology based on three main principles, the one that you see here on the screen. The methodology that is simple, so it's very easy to understand, even for non experts. A methodology that is transparent, so all the assumptions are fully disclosed so people can really replicate it without using complex modeling platforms or even hiring expensive consultants. And the methodology that is robust, which is based on the last information we know about climate science. Now, let's start with the last point, rather than what we know about climate science. So, maybe some of you may have a nice discreet. It is from the latest IPCC report published very recently, and it shows the relationship between cumulative emissions in the horizontal axis, and global warming in the vertical axis. Based on the last 170 years of data, the one that you see in the black line, it is clear that there is a linear or almost linear relationship between cumulative CO2 emissions and global warming. This linear or almost linear relationship is known by the climate science community as the transit climate response to cumulative carbon emissions, or TCRE. Then we go to the next slide. This is a very long name, but actually the concept is very simple. This is a very empirical found relationship that connects cumulative emissions with warming. And it says that actually their mathematical relationship is the simplest one that you can imagine. There is an almost linear relationship between cumulative emissions and warming. Based on this understanding, we decided to propose a methodology that measured the climate performance of companies using this TCRE function. And we created this methodology using four very simple steps. The first step of the methodology is to estimate the carbon or the emissions intensity of the company or the portfolio. The second step, let's go to the next one. We go from the emissions intensity at the portfolio level into calculate what would be the equivalent global CO2 emissions of the portfolio now at the global level. So here we are asking the question of what would be the global mean temperature increase at the end of the century if the entire economy have the same emissions intensity as the portfolio that I am analyzing. When we move from emissions intensity at the portfolio level into equivalent global emissions, then we go to the next step, which is the step three, which is now projecting those emissions into the future. Because as you saw in the previous graph from the IPCC, in order to estimate warming, you need cumulative emissions. It means you need the sum of emissions over time. Therefore, in order to estimate the temperature score of a portfolio, you have to understand how the emissions of the portfolio are going to be evolving over time. Therefore, you have to project the emissions into the future. That's what we do in step three. And finally, step four is about calculating the temperature score. But when you have already the cumulative emissions, then the step four is trigger because you use the TCRE function that I just showed you in the previous slide. Let's go to the next slide. So the first steps that I just showed you. They look very simple, but there are significant assumptions behind each of the steps. And the key for converging towards a standard approach for temperature scoring is precisely to be fully transparent about those assumptions. The initial report has so many annexes because we fully address each one of the underlying assumptions behind these four steps. Of course, I don't have time to discuss all of them in this presentation, but I will show you now some of the main assumption behind each of these steps. So the first step is estimating the initial intensity of the portfolio, which measures the emissions per unit of economic output. How do we estimate the carbon intensity? Well, first of all, we need to estimate the emissions and for that we use a scope one and a scope two emissions as defined by the greenhouse gases protocol, which is by far the dominant system used by companies to discuss their emissions. They represent direct emissions plus the emissions from their energy use. We decided not to include a scope three emissions, which are indirect emissions embedded in the supply chain, although there is plenty of areas about the importance of a scope three. Why we decided not to include a scope three is because unfortunately the quality of the data at the moment is very low. And that is due on the one side to the reporting, but also on the fact that modeling tools used for measuring emissions in the supply chain are still in a very early stage of development. Therefore, we decided to leave scope three out of this method, but we do understand that it would be ideal to incorporate it when the quality of the data and the method allows it. In terms of economic output, we use sales revenue, and the reason for this is very simple. When we estimate equivalent global emissions that is in the next step of the methodology, we use global GDP, which is an indicator of annual economic activity at the global level. Now we need to use out now at the company level, a similar indicator. And that's why we use sales revenue, because both of this indicator one of the company level at the global level, they measure annual activities from companies. Now by dividing carbon emissions by economic output, we obtained the emissions intensity of one asset. Therefore, the emissions intensity indicator that we call it seri for carbon emissions to revenue density is simply the division of scope one plus scope two emissions divided by revenue. Now, at the portfolio level, the estimation is a bit more complex. In 2020, the partnership for carbon accounting financials or PICAF, which is a global partnership of financial institutions that work together to develop and implement a harmonious approach to these close emissions. And they publish a guidance of how emissions should be attributed to an asset or a portfolio. In the case of equity portfolios, PICAF suggested that the use of investment over enterprise value including catch or evict will be the right way to attribute emissions to a specific asset or to a specific portfolio. Therefore, we use follow this approach and we allocate emissions based on this investment over EB. So let's go to the one quick list. So at the portfolio level, we created a seri indicator, carbon emissions to revenue density now at the portfolio level, which looks complicated but actually is not at all. In the numerator, we have the total emissions of the portfolio is for one or two issues, but they are allocated to the different assets of the portfolio following the PICAF standard. In the denominator, they also cut the revenue from the portfolio and again allocated to the asset following the PICAF standard. Notice that when we have a portfolio of one single element, the seri at the portfolio level and the seri at the asset level they converge because it's the same indicator which makes a lot of sense. Let's go to the next slide. Now, the choice of the seri indicator to measure emissions intensity at the portfolio level, follow a very thoughtful process, which included viable feedback from experts in the field, and the corporation of the recommendations from the latest PCRP consultation process. Firstly, we use revenue in contrast to other metrics such as market capitalization in the denominator of the indicator because we want to make it compatible with the indicator at the global level. So in the case of the global level, if you want to measure the emissions intensity at the global level, typically you use global GDP in the denominator, so that's why in the seri we use revenue in the denominator. Secondly, the contribution factor that we use, which is the one which is based on the PICAF standard, pretty much follow what most of the financial institutions are using for attribution of emissions. So therefore it's fully compatible with the standard that is being implemented at the moment following the PICAF approach. The aggregation from asset to portfolio level is not simply by weighting the emissions intensity of the asset using the portfolio rate, but actually by aggregating the emissions and aggregating the revenues using these attribution factors. This was indeed, this approach was the recommendation number 20 in the last DCFT portfolio alignment method, and that's why they call it aggregated budget approach in contrast to portfolio weight approach. That is why we use it here in our indicator. Let's move to the next slide. So, in the first step, we created this seri method in order to estimate the carbon intensity at the company or portfolio level. The next step is to calculate the global carbon emissions equivalent of the portfolio. So therefore here we need to answer the question, what would be the global emissions if the economy had the same carbon intensity as the portfolio we are analyzing. In an ideal world in which the company level data is fully compatible with the global level data. We can just multiply the emissions intensity of the portfolio by the global economic activity measure for instance by GDP and then you obtain global emissions from intensity. Unfortunately, we don't live in an ideal world. So company level indicators, typically add an imperfect proxy of global level data. What is that if you assume if you use a scope one and scope two emissions, and if you send them all of them over all the companies, you don't get global emissions. Similarly, if you send all the sales revenue from all the companies, you don't get global GDP. The seri indicator I showed you before, although it's a good indicator, it's not perfect. And that is what it needs a compensating factor, which is what we call theta. Now, how do we calculate this theta? Well, we estimate seri for what we call a representative portfolio, a portfolio that is representative of the global economy. It's the people of what kind of portfolio that would be, and we finally decided to use the MSCI or country war index as a portfolio that represent the global economy. Then we compare the emissions intensity of that portfolio with the emissions intensity of the global economy. And that gives you the value of the selling factor that you need in order to move from data at the company level into data at the global level. Similarly, there are some limitations in this data element. The main one is that the MSCI or country war index is not open access. The second one is that not all the companies in this index disclose their emissions. But actually, there is a representation about what is currently happening in the financial sector. As more companies disclose their emissions, the value of theta will become more accurate. And the report to calculate this theta yearly. And ideally, we can, for example, move in the future towards creating an open access index that would be representative of the global economy. And so in a step one, we move from company level emissions intensity to a step two, which is global emissions. But now we need to decide how those emissions are going to evolve over time. And in a step three estimation of the community portfolio. Now, as mentioned earlier, we really need now to look how emissions evolve over time. So therefore we're. Let's go to the next piece. So it's very important that we look for not only emissions at one time step, but actually we look at emissions over time. Now you can decide different ways of putting emissions over time. You can say, well, emissions actually are going to build based on the targets of the companies, or they are going to follow a constant projection, or maybe they'll follow the pattern that they follow in the past. Now we believe that for reporting purposes is much better use a constant projection that reflects the current status of emissions intensity of a company. However, for a strategic analysis, we recommend to use forward looking projection. So actually here the methodology is totally flexible and you can use it both ways. You can use it for reporting, and for that we advise to use constant projection, or you can use it for strategic analysis and for that we can incorporate targets. Next slide. Now that we have emissions trajectory, actually, we absolutely because as we saw before, let's click this. When you have an emissions trajectory, you have cumulative emissions and therefore you can estimate one story away. Using the TCR function I showed you at the beginning so step four is a step forward. Let's go to the next slide please. We have actual results from two real portfolios from the investment leader group for anonymity we call them portfolio A and portfolio B. So in the right-hand side axis, we're looking at emissions intensity, which is represented by this black dotted line. And in the left-hand side axis, you have the temperature score of each asset, which is the color bars in each portfolio. As you can see, most of the assets are very green, they have a very low emissions intensity, but very few assets in this portfolio have very high level of emissions intensity. And of course, the temperature score is proportional to emissions intensity by construction. And you have so many assets in the portfolio that are super green. The average, let's say the series of the portfolio is very low, is 1.68 in case A and 1.67 in case B. Next slide please. Now, here we're looking at the same portfolio A, exactly the same graph as before, but we separated the asset by sectors, by three sectors. And you can see that actually, let's go to the next clip, please. If we move from what we call a universal temperature score or a sector agnostic temperature score into a sector-specific temperature score, then actually the score that asset can get in different sectors may vary. And the reason for that is very simple. When you move from a universal score to a sector-specific score, the carbon budget of each sector changes. And then you see what happened here, which in practice, having the same emissions intensity, where some sectors which have lower carbon budget may get a higher temperature score. Now, in our report, we really focus on the universal method. We, in one of the annexes in XD, we show how can we create actually a sector-specific metric that many financial institutions are interested in. Next slide. Next clip, please. Here are we seeing exactly the same phenomenon with portfolio B. In the case of portfolio B, again, you have one score for the portfolio using a sector agnostic metric or universal metric, where you move to a sector-specific metric, then you have a specific sector with smaller carbon budgets, so sectors that need to be decarbonized faster. And in that case, those sectors, of course, assign a higher temperature score to those assets. So therefore, it's very important to understand that a universal temperature score may give you different results than a sector-specific score. Let's move to the next slide. So, you may ask yourself, well, why did not we focus on a sector-specific temperature score with a sophisticated forward-looking analysis? Well, actually, we would love to do that, but we strongly believe that, first, we need to agree on the common ground on how portfolio-aligning metrics work, and especially how temperature score work. So the core of our report was really trying to build the common ground of what are the metrics that we want to build and be fully transparent regarding the assumption that we're making. So we believe that by supporting global reporting standards based on transparency, simplicity, and robustness, we really can accelerate the integration of the mathematics into the financial sector. And finally, the last slide. Of course, there are some challenges I heard still. So the lack of standardization is by far one of the main challenges in this sphere, and we hope our report helped to open the discussion and try to converge, particularly in the assumption that we make at each step. And that is why having simplicity and transparency as part of the metrics is so essential. And of course, there are also some technical challenges that I don't have time to address here in detail, which is mostly about how can we use a scope-free data, for instance, by including data access to models, also how to analyze other gases, and how to create sector-specific and region-specific benchmarks, but based, of course, on more transparent and better modeling tools. This gave you some clarity of what is the situation of temperature scoring at the moment in the field, what are the main questions that we need to answer. And actually, we love for you to get in contact with us in order to maintain this conversation going, because as Jake mentioned, this is pretty much work in progress. Many thanks. Thank you very much, Pablo. And I think we have time for a few questions now. We've had questions coming in from the audience. Pablo, I'd like to direct the first one to you, which is, what do you consider to be the main advantages and limitations of this metric, and what advancements can we expect to see in the near term? The main advantages of this metrics are the three principles behind it, which is simplicity, transparency, and robustness, but especially, I would say, transparency. I think that's the main challenge of the field right now, and to have the assumptions fully available for everybody to see is the key for having a conversation. And this is to build a scope three into it because scope three is important, but unfortunately the data is not available right now. But also, and to build sector specific metrics because some sectors have priority for the carbonization, particularly for example the power sector and transport sector. So therefore we should accelerate finance to sector that need more finance to accelerate their position. Therefore moving to a sector specific metric I think is an important next step. Can you come in there as well? Yes, I mean, from a, I think, I think Pablo has got it from our, from a methodological perspective and also pointing to that innovation in terms of sector specific versions and also regional specific versions. I think for me the, the main advantage of less. Let's not talk about the specific method necessarily which we've heard about but of temperatures going generally is its way that it connects with the public a lot of what I was saying earlier is about how we bring the public into the investment into the investment decision making process. They have, you know, they have values they have things they want to associate with their investment decisions, and we've done work previously. Also with the ILG, which reveals just how much interest financial consumers have in getting this right. In fact, they're prepared to, you know, they're prepared to make some very interesting choices with regard to the sustainability performance of what they are investing in which are surprisingly robust. And I think for the, for the industry to provide those choices, or in fact to raise the bar on all funds which are being offered to the public. I think is really, really important, but to do that in a very meaningful way in a way that connects with their interest and is understandable and not confusing so having a temperature in degrees centigrade associated with a particular fund I think is really easy to understand people hear a lot about two degrees or 1.5 or five degrees global warming and beginning to understand particularly perhaps let young people who are actually being educated about this at school and in other fora. This is something we need to start talking about. It's a really important feature I think for all funds, not just ones which are claiming that they have a particular climate angle on them. Okay, we've, we've had a number of questions come in in relation to the sectoral approach that you covered at the end of presentation Pablo. So one here, which I think covers a lot of them is how, how have we considered climate solutions that are missions intensive but abate far more emissions downstream. So for example copper and lithium mines, battery manufacturing into this temperature score metric, given that obviously these solutions are paramount to meeting long term targets and need to be financed but perhaps in isolation in such a way that the temperature score and you know don't perform so well. Yeah, so in general a temperature score is a metric that goes from emissions intensity into temperature. So it's a translation metric. To do it universally, you have the luxury to use for example the PCI function that I just mentioned. When you do it sexually, you need now a very detailed perception of what will happen with the sector in the future and that is why we use typically models. We use the integrated assessment models, which give you a scenario of the difference in the future that is a necessary step to move towards a separate specific meeting. Now, those scenarios have embedded all those considerations that you mentioned those scenarios have embedded what are the trajectory of the different sectors in the future in terms of the speed of the carbonization. In that case, what the temperature score does is very much reflect the match between the company following that trajectory expected for the sector versus the actual trajectory that the company is following. So I will say all the assumptions regarding the role of sectors and the importance in the decarbonization chain would be embedded into the scenarios of the sector. Thank you. Another question so I know that we discussed around how scope three emissions are are not but could be included in this method. We've had a question around whether the methodology also captures all GHG emissions or just CO2. So CO2 with the simplicity aspect of the methodology. Companies, when they disclose their emissions, they follow the greenhouse gas protocol. That is the kind of by far the most well known method. And typically according to that protocol, they should disclose together with the carbon emissions. So therefore, if we measure a scope one and scope two emissions from a company, those emissions should include none or none other gas or non CO2 gases. Now, the TCR function uses CO2 only. That is one of the reasons for using this data value, because we are comparing actually two metrics that are different. So therefore you need that scaling factor to make that correction. Hopefully, in the future came at scientists and that will be policy like PCC I suspect, and they will come with similar PCR refunction or other gases. And with that happen, we will be able to separate what happened with CO2 versus what happened with other gases. Unfortunately today we only have the PCR refunction for CO2. That is why we need to do this transformation between scope one and scope two at the company level versus global CO2 at the global level. I think Lizzie to add to that, the scope three dilemma is ever present, isn't it? We would love to be incorporating that but didn't feel that the data were strong enough, not across the investment universe that we believe this approach should be applied to. But of course it's improving all the time. We need, you know, as Pablo said earlier, we need better, higher quality, more conscientiously created scope three data built into larger databases that are accessible and standardized rather than a slightly hidden misapproach that we have at the moment. One that is available, that'll be the first thing that's incorporated in such methods. Fantastic. And time for one last question, which is actually around TCFD scenario analysis. In relation to step three of the methodology when projecting emissions into the future, is this comparable to the TCFD scenario analysis? And if so, how could it be leveraged for TCFD scenario testing? That's a very good question and indeed we had a fantastic conversation with the team behind the TCFD, the last TCFD report, we really appreciate that interaction because it was very enriching. And indeed the idea of the step three is precisely for the company or the person which is implementing the methodology in what to choose, right? If you use a forward looking methodology to estimate emissions, for example, if you use companies targets, then you are following very much the recommendations from the TCFD. If you use, let's say, a constant projection of emissions, that would be what we consider would be the best way for going into reporting. But just the step three of the methodology is fully compatible with what the TCFD recommendations are. Thank you. And that's it. We're at the hour now. So thank you so much, Jake and Pablo for your presentations. Thank you to the members of the investment leaders group and all of those who reviewed the method and reported self and thank you of course to the audience for joining us today. As Jake and Pablo mentioned, we really welcome your feedback and engagement on this work. So if you'd like to know more about the methodology or if your organization is interested in using it for your own emissions reporting, please do get in touch. Our contact details are on the slide on the screen now and we'd be very happy to have a further conversation. Thank you so much.