Invesco and AP4 partner to explore the Road to Carbon Neutrality in new study

This report provides a robust framework and valuable insights for investors seeking to optimise and safeguard their portfolios in the context of climate change.

"We are delighted to work together with AP4 on this important report, which is a testament to our ambition to share sustainable investment insights widely. It has allowed us to combine our expertise and resources to deliver a practical and very topical guide for climate-conscious investors in relation to forward looking carbon metrics, says Daniel Eskilsson, Senior Sales Manager at Invesco.”

The report outlines different approaches to identifying paths towards carbon neutrality and specifically highlights the potential impact of integrating climate alignment in portfolio construction.

"There is a lack of guidance and knowledge on how to address temperature alignment in portfolios. This report therefore acts as a tool for investors to navigate different types of data sets and how the choice of measurement method affects the portfolio's alignment with the Paris Agreement," says Julia Ripa, Senior Analyst at AP4.

The collaboration between AP4 and Invesco highlights the commitment of these industry-leading organizations to addressing climate change and supporting investors in their pursuit of carbon-neutral investment strategies.

Report highlights:

Key climate metrics - The document focuses on comparing Carbon

Budget Divergence and Implied Temperature Rise (ITR) as essential tools for assessing portfolio alignment with climate goals.

Practical Application - Carbon Budget Divergence is useful for detailed issuer-level analysis with a focus on materiality as it looks at absolute deviations from an assigned carbon budget. ITR is aimed towards for high-level communication and focusses on the relative over- or undershoot.

Sector variability - “Dirty” sectors like Energy, Utilities and Materials typically score worse on average than other sectors. Due to the relative vs absolute perspective of the two approaches, the assessment for these sectors can vary substantially.

Portfolio optimization - A reduction in both ITR and carbon budget overshoot requires accepting a somewhat higher tracking error. In general, the level of active risk required for a significant reduction of the two climate metrics is relatively small though.

About Invesco Ltd.
Invesco is a global independent investment management firm dedicated to delivering an investment experience that helps people get more out of life. Our distinctive investment teams deliver a comprehensive range of active, passive and alternative investment capabilities. With offices in more than 20 countries, Invesco managed $1.7 trillion in assets on behalf of clients worldwide as of June 30, 2024. For more information, visit invesco.com.