Author Details

Guido Giese

Guido Giese

Managing Director, MSCI Research

Manish Shakdwipee

Manish Shakdwipee

Executive Director, MSCI Research

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How to Evaluate Climate Metrics and Avoid the Big Confusion

  • Climate metrics can differ substantially in terms of scope, objectives and applicability. It is thus important for investors to select the right set of metrics to support them in meeting their climate-investing objectives.
  • Clarifying the questions climate metrics are meant to address and understanding their potential applicability for different use cases can help investors select the right set of metrics.
  • The following two-step process may help: 1) identify a broad set of climate metrics based on their general scope and objectives, and 2) refine the metrics further according to specific portfolio requirements.

Investors with climate-investing objectives may face challenges in measuring the climate characteristics of their portfolios. One key question is which metrics to use.

For example, while many of MSCI’s climate metrics were developed in line with proposals of industry organizations, these metrics may differ substantially in terms of their scope and objectives. This makes it imperative that investors understand which ones can help them gauge progress toward their climate-investing goals. Investors may also want to consider different metrics at different stages of their climate-investment process, adding to the challenge.

We have developed a two-step toolkit to help institutional investors choose the most suitable metrics for them, as detailed below.


A climate metrics selection toolkit

This exhibit details MSCI’s two-step climate metrics selection toolkit

Source: MSCI ESG Research.


Step 1: Identify key metrics and understand the purpose of each

In the first step, investors can identify a broad list of relevant climate metrics by better understanding the scope and objectives of each metric. Using a decision-tree, as shown in the exhibit below, these can then be mapped to their portfolio’s broad climate objectives.

The first layer of the tree distinguishes between climate metrics that measure climate impact and those that measure climate risk:

  • Metrics that measure climate impact are either directly measured as a temperature impact, such as implied temperature rise, or have explanatory power for temperature rise in the atmosphere, such as absolute Scope 1 emissions measured in metric tons of CO2e.1
  • Metrics that assess climate risk2 either estimate potential financial gains or losses as a proportion of a company’s enterprise value, such as climate value at risk (climate VaR), or indicate risk or opportunity exposures, which may explain potential financial risk under certain climate scenarios.

At the second layer of the tree, both sub-trees for climate impact and climate risk can be divided into a sub-tree of climate metrics measuring the current state of companies or portfolios versus metrics that provide a forward-looking projection of the climate impact or climate risk, respectively. The final layer shows the individual MSCI climate metrics as leaves of the tree.


MSCI’s climate impact vs. climate risk metrics decision-tree

This exhibit details MSCI’s climate impact vs. climate metrics decision-tree

Source: MSCI ESG Research.


As detailed in our recent paper, “Understanding MSCI’s Climate Metrics,” it is important to understand the investment questions each of these metrics answers. As an example, the following exhibit compares the investment question addressed by MSCI’s status quo metric Carbon Emissions EVIC Intensity and the forward-looking measure Implied Temperature Rise.


Example of questions addressed by MSCI’s climate metrics

Source: MSCI ESG Research.


Step 2: Refine the list of metrics

In the second step, investors can refine the initial list of climate metrics after understanding the requirement of the different stages in their climate-investment process (see exhibit below) and potential applicability of different metrics to those requirements. We present four key criteria to better understand the potential applicability of different climate metrics.


Different use cases in the climate-investment process

This exhibit shows the various use cases during different stages of the climate-investment process

Source: MSCI ESG Research.


First, an investor’s climate strategy to achieve their climate objectives can be a key factor in determining a metric’s applicability. For example, the MSCI Carbon Emissions Revenue Intensity and Fossil Fuel Revenue metrics can both be used to address current climate risk in a portfolio. However, our Carbon Emissions Revenue Intensity may be more aligned with a low-carbon investment strategy compared to Fossil Fuel Revenue, which may be better suited for an ex-fossil fuel investment strategy.

Second, an investor may find an industry-standard climate metric useful as a primary metric for reporting, stewardship or target setting, where the audience includes a broad group of stakeholders. For example, metrics such as MSCI Carbon Emissions EVIC Intensity, Carbon Emissions Revenue Intensity and Cleantech Revenue have been mentioned by several regulatory and non-regulatory initiatives and can thus be considered generally acceptable or industry-standard metrics.

Third, for portfolio construction, the stability of the climate metrics may be a key consideration for some investors. Metrics which are highly volatile due to non-climate factors such as revenue or enterprise value could lead to unwanted volatility in the portfolio.

And finally, the availability of historical data may be an important consideration for some investors who need a metric that allows them to back-test their portfolio’s climate strategy.


Climate metrics: A key tool to support climate-investing objectives

As climate investing becomes mainstream, putting climate ambition into action will require the right set of tools, including suitable climate metrics for each climate-investing use case to measure, monitor and communicate progress. Investors could consider their broad climate objective or several other criteria to find the most suitable metrics.



1A carbon dioxide equivalent, abbreviated as CO2e, is a metric measure used to compare the emissions from various greenhouse gases on the basis of their global-warming potential (GWP), by converting amounts of other gases to the equivalent amount of carbon dioxide with the same global warming potential. Source: Eurostat, Statistics Explained, accessed Jan. 26, 2023.

2In this blog post, “climate risk” denotes both climate risk and climate opportunities.



Further Reading

Implementing Net-Zero: A Guide for Asset Owners

Net-Zero Alignment: Engaging on Climate Change

Understanding MSCI’s Climate Metrics

Register Now: Getting to Grips with Climate Metrics — A Comprehensive Webinar