Lyxor discloses ‘temperature’ of more than 150 ETFs

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Lyxor Asset Management is publishing the temperature rise currently implied by more than 150 of its Exchange-Traded Funds (ETFs), it announced today.

A so-called “implied temperature rise” (ITR) is a forward-looking metric that attempts to estimate a global temperature rise associated with greenhouse gas emissions of entities in an investment portfolio or strategy.

There is growing interest in the metric in the context of efforts to assess and pursue portfolio alignment with climate change goals. Some asset owners use it, and Amundi has been piloting a version for a set of equity funds.

Methodologies for accurately stating the degree of warming potential of an investment portfolio are “cutting edge and constantly evolving,” Lyxor noted, adding that it therefore saw its disclosure of such information as a gradual process.

The Task Force on Climate-related Financial Disclosures paid particular attention to the ITR metric in its consultation on forward-looking financial sector metrics, which runs until 27 January. Mark Carney, former governor of the Bank of England, has called on the financial sector to agree on a measure of portfolio alignment with climate targets.

Lyxor said assigning an implied temperature to the 150-plus ETFs was “a significant milestone on our journey towards providing investors with the information they need to better assess the impact of their portfolios on global warming and, if necessary, help align them with the goals of the Paris Agreement”.

The asset manager is working with climate data specialist S&P Global Trucost on the methodology for calculating the temperature.

It said that to measure the temperature of the first group of ETFs, it studied both the past emissions data and the future emission projections for each of the companies within the funds, based either on commitments announced by the companies themselves, or on estimates provided by S&P Global Trucost.

The approach combines two recognised methodologies, according to Lyxor: the Sectoral Decarbonisation Approach (SDA), developed by the Science Based Targets Initiative for sectors with high greenhouse gas emissions, and the Greenhouse gas Emissions per unit of Value Added (GEVA) approach for other sectors.

Florent Deixonne, head of SRI at Lyxor Asset Management, said: “All portfolios, indices and benchmarks have some form of climate impact. Today, we are beginning the process of helping all kinds of investors assess those impacts and manage those risks by publishing temperatures.”

The full list of fund temperature disclosures can be found here.