Research Collaborative Workshop on measuring the alignment of investments and financing with climate objectives, 7th OECD Forum on Green Finance and Investment (6-9 October, 2020) – Session 1.B - Nathan Fabian, Chief Responsible Investment Officer, UN PRI.

1. - R E S P O N S I B L E I N V E S T M E N T -
Measuring alignment with
climate goals
Nathan Fabian Chief Responsible Investment Officer, PRI

2. 1. Key concepts - What are we aligning with what?
Three layers which provide the path to comprehensively understanding an entity’s ESG risks and
opportunities, environmental and social performance, and contribution to climate goals
2
Societal norms and planetary thresholds
The context within entities operate from a
sustainability perspective, includes global,
national and regional targets and objectives.
Sustainability performance
The contribution of an entity’s operations and
products to social and environmental
conditions.
ESG risks and opportunity
ESG risks likely to impact the financial
condition or operating performance of a
company (financial materiality)
Sustainability
performance
*
Societal and
planetary thresholds
ESG risk and
opportunities

3. Social and planetary thresholds
3
Sustainability
performance
*
Societal and
planetary thresholds
ESG risk and
opportunities
Planetary threshold: 1.5 degrees
warming above pre-industrial levels
International agreement: Well below
2 degrees approaching 1.5.
Regional / Country targets:
• % or intensity improvement targets;
• Time bound emissions goals
Planetary thresholds, based on scientific analysis are used to inform international frameworks or
policy targets

4. Sustainability performance – what to assess
4
Sustainability
performance
*
Societal and
planetary thresholds
ESG risk and
opportunities
Units or entities
• Asset
• Economic Activity
• Company
• Sector
• Portfolio
• Country
• Global
Reporting on alignment can not be done without reference to a national or international policy
objective or target

5. Sustainability performance – what to measure
5
Sustainability
performance
*
Societal and
planetary thresholds
ESG risk and
opportunities
Actual environmental performance
• Footprint vs budget or target
• Activity or asset intensity vs target
Lead process indicators:
• Policies / Strategies / Governance /
Targets / Plans
Reporting on alignment can not be done without reference to a national or international policy
objective or target

6. ESG risk and opportunity – financial assessment
6
Sustainability
performance
*
Societal and
planetary thresholds
ESG risk and
opportunities
Financial performance
• Emissions costs, real or implied
• Income from products or services
Lead indicators:
• Policies / Strategies / Governance /
Targets / Plans

7. 2. Many frameworks and tools now on offer
7
1. TCFD
2. Net Zero Asset Owner Alliance
3. IIGCC Paris Aligned Framework
4. CA100+ benchmark
5. Transition Pathways Initiative
6. EU Taxonomy
7. PACTA
8. Inevitable Policy Response
9. Science Based Targets
These frameworks address sustainability performance and financial dimensions in different ways

8. Examining three approaches
Different ways to consider alignment
8
Taxonomies: E.g. EU Sustainable Taxonomy
Scenarios: E.g. IEA NPS, IPCC P1, P2 etc
Forecasts: E.g. Inevitable Policy Response

9. 9
Examining three approaches
Specific reference points that people are using.
Scenario
(pathway with targets)
Emissions forecast
(plausible future)
Taxonomy
(performance alignment)

10. 10
EU Taxonomy framework
Two main alignment concepts, based on substantial contribution or doing significant harm to
climate goals.

11. 11
SC
threshold
Very low
Very
high
DNSH
threshold
Zero
emissions
Substantially
contributing
and can be
called Paris
Aligned
Significantly
harmful
or so-called
“red”
Not significantly
harmful, nor
substantially
contributing
(May or may not be
Paris Aligned)
Neither SC
nor SH
How the Taxonomy uses performance thresholds
Individual activity performance (and alignment) is a different idea to portfolio alignment. The latter
is the sum of its parts.

12. 12
Source: Climate Action Tracker, Dec 2018 update
Current policies
incl. baseline IEA
NPS and NDCs
2.7 – 3.5°C
2°C consistent
1.5°C consistent
Global
yearly CO2e
emissions
Scenarios
Scenarios examine what could happen based on pre-determined, underlying assumptions, e.g.
meeting a temperature target or reliance on current policies or known technologies

13. ESG risk and opportunity
13
Sustainability
performance
*
Societal and
planetary thresholds
ESG risk and
opportunities
TCFD financial risk categories
• Transition
• Liability
• Physical
TCFD is a framework for financial risk and opportunity assessment. Scenarios provide a way to
understand the future and consider risk and opportunities. But there must still be a climate goal
orientation.

14. 14
Mitigation Adaptation
• Can the company meet the
criteria?
• Available technology
• Right costs
• Right policies
• Are they willing to meet the
criteria?
• Do they have the capability?
• Do they have an credible
plan?
• Is the company well
governed?
• Does the company
understand their exposure?
• Can the risks be managed?
• Is there a resilience plan in
place?
• Is it sufficient?
• Is the cost acceptable?
Investors can use lead indicators to assess transition potential
Good plans are needed, but not all transitions will align with climate goals.

15. 2025: IPR
1.5°C pathway
(no overshoot)
Overshoot
Baseline - IEA NPS &
NDCs
c.2.7 – 3.5°C
IPR FORECAST FOR
BUSINESS PLANNING
?
IllustrativeGlobal
yearly CO2
emissions
The role of forecasts – Inevitable policy response
Forecasts attempt to assess what is likely to happen in practice considering major variables and do not
start with a temperature target in mind. Ultimately investors must judge what transition looks like.
15

16. 16
2015
Countries submit
their 1st round of
climate pledges
(NDCs)
2020
Countries
communicate their
updated or 2nd round
of climate pledges
2025
Countries submit
their 3rd round of
climate pledges
(NDCs)
2023
Global stocktake on
climate, mitigation
and finance
2028
Second global
stocktake
Policy announcements are expected to
accelerate in 2023-2025
Why IPR differs from a scenario
The Paris Agreement’s “ratchet mechanism” increases the likelihood that governments will strengthen
policy by 2025.

17. 17
In conclusion
Sustainability
performance*
Societal and planetary
thresholds
ESG risk and
opportunities